Finally Oil services stocks are coming back to life. Oil service stocks are particularly appealing to us because they are likely to act as a fantastic insurance policy/hedge against inflation. With the dramatic rise in the value of gold, silver, platinum, the continued rise of inflation premiums attached to TIPs and the apparent free fall of the USD we think that any investment undertaken should be based on its ability to hold value in non USD terms.
What is driving OIH higher? We don’t know for sure because OIH has advanced on days when crude has fallen. Perhaps it is because of the powerful rally underway in natural gas (which no one wants to believe in). Or maybe it is the increase in rig count over the last few months.
Experience tells us that there is a stronger relationship between rig counts and oil service stocks than there is with the price of crude. Either which way the reason is not so important as is the fact that oil and gas service stocks were one of the better performing assets during times of high inflation in the past particularly the 1970s and that fact is going to be critical over the coming months (perhaps even years).
