Oilfield services firms lean on Middle East rebound but risks persist
Oilfield services are poised for recovery, particularly in the Middle East, where firms are banking on increased activity to drive growth into the next year. However, challenges such as rising operating costs and potential disruptions loom large, suggesting caution. The implications for currency markets could be significant if the expected recovery does not materialize or if costs continue to rise unexpectedly.
Where it sits in our coverage
Our consensus EUR/USD target sits at 1.075 (median across 8 firms), with Goldman at the upper bound (1.12) and BofA at the lower (1.04). Reuters' report aligns closely with the overarching view of a cautious but optimistic recovery in global markets, which supports our median projection for EUR/USD.
How firms align
Goldman Sachs is aligned with the headline's positive outlook, targeting 1.10 in the medium term, reflecting a belief in an eventual rebound. Conversely, BofA’s more bearish stance, with a target of 1.04, suggests skepticism regarding sustained recovery in oil-related activities.
What the data shows
Recent forecasts suggest that while a recovery in the Middle East seems likely, operational cost inflation might dampen overall profitability. For a deeper dive into this outlook, refer to /research/oilservices2023.
How firms align with this view
Aligned with the headline view
Contrary positioning
Key takeaways
- 01Middle East oilfield activities expected to recover next year, but rising costs pose risks.
- 02Focus on currency movements tied to oil market fluctuations.
- 03A potential misalignment in recovery expectations could place downward pressure on EUR/USD.
- 04Watch for mid-term developments in operating costs affecting service firms.
Market implications
Traders should keep an eye on the EUR/USD level around 1.075, as fluctuations could signal market sentiment shifts related to oilfield recovery. Upcoming earnings reports from major oil services firms will be critical.
Risks to this view
Persistent increases in operational costs or any geopolitical tensions that disrupt the Middle East's recovery could reverse the bullish sentiment. Such catalysts would lead to a reevaluation of our current EUR/USD outlook.
Sentiment by currency
USD~EUR~JPY~GBP~Composite USD score: +0.00
Sources & References
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