As one of the world’s largest oil field services companies, Halliburton (NYSE:HAL) will probably survive the underlying oil market catastrophe. Still, the impact will leave Halliburton stock bruised, which probably suits many people just fine. As you know, the energy firm has no shortage of controversies. Frankly, this is one of those stocks to sell you can feel good about.
Even if you sided with the scandal-generating company – or even if it was a great company in some parallel universe – the surrounding fundamentals are too pernicious to ignore. Primarily, every country’s oil industry is under severe pressure due to the price war between Saudi Arabia and Russia. A disagreement on cooperative production cuts sparked the conflict, which bodes terribly for Halliburton stock.
However, some analysts have pointed out that Saudi Arabia might blink first in the oil war. Although Russia is largely an energy exporter, it has a far more diversified economy now. Further, years of sanctions have “toughened” its economy, making it relatively insulated from outside pressure.
But before you jump aboard Halliburton stock, you should consider the nuances of this geopolitical standoff. Principally, neither the Saudis nor the Russians have much love for the U.S., particularly American oil industries.
Obviously, the Saudis see the rise of shale gas in the U.S. as a threat to its previously viable but one-dimensional economy. For the Russians, they resent Washington’s sanctions as it directly impeded Moscow’s global economic ambitions.
Thus, I don’t think it’s surprising that the Trump administration failed to convince the Saudis to back off. And the recent talks with Russian President Vladimir Putin? Let’s just say that I’m not holding my breath.
Halliburton Stock Needs Demand, Not Production Cuts
Personally, over the last few weeks, I have grown disillusioned with the current administration. Anybody can lead a country during a robust bull market. However, a true leader is defined by their actions under fire. So far, I’m not getting a good read. Instead, I’m witnessing more panic.
Here’s a great example. In a recent interview with “Fox & Friends,” President Trump stated that “I never thought I’d be saying that maybe we have to have an oil increase, because we do. The price is so low.”
What? Oil prices are “so low” because nobody wants to go anywhere. With several states issuing mandatory shelter-in-place orders, millions of Americans have little choice in the matter. And with a raging outbreak in New York, New Jersey and California, most people are limiting their transportation to essential activities.
It’s the reason why gas prices have hit multi-year lows and could go lower. Sure, I suppose that Trump could issue an executive order to force prices higher. But if no one wants gasoline at $2 per gallon, why would they buy at $3?
In a way, the oil war is a red herring. Even if the Saudis and the Russians kiss and make up, it won’t do anything for the sector. Admittedly, Halliburton stock and other majors like Schlumberger (NYSE:SLB) could see a pop on the news. Unfortunately, without demand, the exporters could cut production to zero and it may not move the needle for some time.
As the New York Times detailed, the world has a new problem regarding oil – peak storage. In other words, with so much “black gold,” there are fewer places to store it all. Therefore, the Saudis should continue fighting the war because there’s really nothing to lose.
Travel Industry May Not Come Back
Aside from each country’s domestic transportation concerns, the global tourism industry will take a hit. According to one CNN report, the sector “may not recover for years.” I don’t think this is hyperbole. Indeed, this assessment may be ambiguously optimistic.
Matthew Dass, an economist with Tourism Economics, stated that “China is the single largest outbound travel market in the world, in terms of spending.” Based on industry forecasts, the pandemic’s impact “could lead to 25 million fewer outbound trips by Chinese travelers this year. That could wipe out as much as $73 billion in spending.”
And let’s be real, folks: the Chinese and Asians in general are bearing the brunt of societal scapegoating for the global outbreak. Furthermore, let’s not pretend that such scapegoating is a unique phenomenon. Anti-Chinese laws and sentiment are permanently woven into the history of this country.
Attempts to troll people of color into silence won’t erase facts.
I mention these things because there’s no way that Chinese tourists will visit the U.S. or any other non-Asian country. Especially if people lose their livelihoods over the pandemic, the hatred will be palpable. Obviously, this is bad for tourism and invariably, a net negative for Halliburton stock.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he did not hold a position in any of the aforementioned securities.