Those companies that look most likely to benefit first from a sustained rise in commodity prices are those that supply kit to the extractive industries: it's the old 'picks and shovels' argument. Unfortunately, the reverse also applies. So investors shouldn't be too surprised that share prices in the oil equipment and services companies headed south once the glut in world oil markets became apparent.
Indeed, shares in all four of the sector's constituents pulled back sharply during 2014, with Petrofac (PFC) and IC favourite Hunting (HTG) down two-fifths and one-third, respectively. That's unquestionably a poor showing but, we think, it would be prudent to sit tight - especially in the case of Hunting.
Certainly, capital budgets in the oil and gas sector are being squeezed in response to the slump in crude prices. For instance, recent estimates from the Stavanger-based Norwegian Petroleum Directorate point to a 15 per cent drop in aggregate spending from the sector in Norway - Western Europe's largest oil producer. But that appears modest compared with the spending slide seen in other non-Opec producing nations, particularly given the recent dire pronouncements on capital budgets from the likes of Royal Dutch Shell (RDSB), BP (BP.) and ConocoPhillips (NYSE:COP).