Worker checking a jackpump at sunrise by zhengzaishuru via iStock
After months of tough rhetoric and a spiraling geopolitical crisis, cooler heads have apparently prevailed in the Iran crisis, leaving Halliburton (HAL) in an odd position. In large part because of the escalating tensions, HAL stock soared. And while it’s still performing well on a year-to-date basis (up almost 17%), the security finds itself down nearly 19% in the trailing month.
Worse yet, the negative acceleration has been so bad that HAL stock has ignominiously earned a Weak Sell rating from the Barchart Technical Opinion indicator. Caution is understandable given how interconnected Halliburton is to the geopolitical narrative. In a nutshell, the closing of the Hormuz strait led to international oil indices shooting higher, in turn raising the West Texas Intermediate (WTI) price.
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Now, with tensions starting to smooth over (relatively speaking), WTI has suffered a downturn. And because Halliburton is heavily leveraged to short-cycle North American shale (where operators can stop or start drilling within weeks), a drop in oil prices leads to immediate domestic budget cuts. Subsequently, producers slow down their completion and fracking schedules, directly hitting Halliburton’s core revenue driver.
Naturally, many investors are seeing the writing on the wall, leading to the sharp selloff in HAL stock. However, Halliburton’s most recent earnings report gives some hope for contrarians. Primarily, the oilfield service provider enjoyed strong international activity and saw early signs of a North America recovery, thus offsetting disruptions in the Middle East.
Another point to consider is that Halliburton kept its Middle East crews and equipment in place rather than pulling back. This bold decision may allow the company to be in a better position relative to the competition to catch demand in the region once it returns. Therefore, HAL stock might not be a complete bust the way some skeptics might…
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