Why SLB Stock Slumped Today
Key Points
A major oil pipeline in the Middle East remained closed.
The Saudi government announced the closure on Friday; on Monday, its status had not changed.
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SLB (NYSE: SLB), the sprawling global oilfield services company, didn't have a great day on the U.S. stock market as the trading week began. The recent closure of a major oil pipeline in the Middle East rattled investors, as did an analyst's report on the likely harmful effects on sector stocks with high exposure to the region. As a result, SLB's shares fell by nearly 5% that trading session.
Turning the valve
On Friday, the government of Saudi Arabia announced it had shut down the East-West pipeline, a major conduit for crude oil in its region. This was in the face of drone attacks coming from Iraq, according to government officials cited by Reuters. As of late Monday afternoon, the pipeline was still shut.
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Citigroup felt obliged to offer its take on this, issuing an analyst note before Monday's market open.
According to Streetinsider, the bank's pundits cautioned that an extended shutdown of the pipeline could negatively affect drilling activity. This depends on how long the shutdown lasts, however; if it's short in duration, drilling likely won't be hampered significantly.
In its note, Citigroup identified a set of oilfield services companies exposed to the Saudi market, with SLB topping the list. The analysts also included SLB's rivals/peers Baker Hughes and Halliburton, among others.
Caution warranted
The shutdown is a recent development in the Iran conflict, which is increasingly spilling over into other countries in the region. Since there doesn't seem to be any resolution on the horizon, the detrimental effects on oil assets and the energy industry generally are likely to be exacerbated. That alone would make me hesitant to invest in SLB and its peers in the oilfield services sector.
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Citigroup is an advertising partner of Motley Fool Money. Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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