It’s still a bad time to be an oil driller… or any oil-services provider.

The world leader in oil service, Schlumberger (SLB), laid off another 8,000 people in the first three months of 2016. That’s 42,000 total layoffs since mid-2014 – nearly one-third of its staff in just two years.

It has been an epic bust in the oil sector.

[ad#Google Adsense 336×280-IA]And yet, Schlumberger shares are up 29% since their January lows. So you might be wondering if it’s time to buy yet…

The answer is no.

You see, the oil-services industry is in big trouble. We can see this by looking at the number of rigs drilling for oil and gas.

The “rig count” is a good indicator of the industry’s health.

And as you can see in the following chart, North America’s rig count (471 rigs operating today) is at its lowest level since service company Baker Hughes (BHI) began tracking rig counts back in 1944…

The number of drill rigs is down a huge 80% since the recent peak in November 2014. That kind of fall isn’t just consolidation… that’s a complete collapse.

Most important, even though oil prices have rallied from $26 per barrel in February to around $43 a barrel today, the rig count still has room to fall. If companies were still drilling, the rig count would stop falling. It hasn’t, so oil prices aren’t high enough to get companies to use rigs.

In other words, as contracts end, no new contracts are coming… and the drill rigs stop working.

That’s bad news for producers and service providers. Fewer new wells mean fewer fracking jobs, fewer completions, less sand, less pipe, etc… That means the risk of further losses for Schlumberger and the other oil-services companies is still too high for my liking.

In Canada, we’re seeing similar effects of the oil bust. One company benefiting is Ritchie Bros. Auctioneers (RBA), whose shares are up 30% since my January essay.

Ritchie is holding Canada’s largest-ever equipment auction this week, with more than 10,000 pieces of equipment up for sale, most of it from Canada’s oilfields. The outlook is bleak all over North America right now.

And Ritchie will continue to auction the equipment they stop using in the oil patch. The big winners today will be companies like Ritchie Bros., which can turn the oil industry’s pain into cash.

Good investing,

Matt Badiali


Source: Growth Stock Wire