Is The Deepwater Cartel Dead? Or Just Hibernating?

Reexamining My Thoughts On Offshore Oil Services With A Side Of Current Events

I said last week that I would be writing about the deepwater companies in offshore oil services, and it has been a busy week. I still think there are opportunities in the sector for long-term investors, but if the way 2025 has started is any indication, we might have to wait for a turnaround. When I talked with Rob Connors on my podcast recently about offshore oil services, he pointed out that those companies tend to do best in the third and final phase of an oil cycle. Right now, he thinks we are the lull before the second phase. I don’t want to beat the dead horse on offshore because I have already laid it out in several places, but I do want to focus on the most important things to watch for the sector in 2025, as well as a brief look at some of the things going on that could have an impact on oil.

When I first started looking at offshore oil services, my first thought was “wow, these things are cheap”. My second thought was that they are probably in the second or third inning of the cycle that could last at least a decade. I was partial to deepwater, because they had the highest day rates, were the most expensive to replace, and the longest to build, with an order book effectively at zero. I could also see the writing on the wall that we would probably see consolidation, and the sector would trend towards becoming an oligopoly. In short, the most irreplaceable assets in the global offshore oil services fleet, mostly locked up by the largest companies in the sector.

One of the things I overlooked was the stacked capacity (inactive drillships), and my assumptions about how fast that portion of the fleet would be reactivated, or if it would be reactivated at all. If I stick with baseball theme, my problem was that I didn’t foresee that the fourth inning would turn into a complete dumpster fire, which is what the market has priced in over the last several months. I think the market selloff is overdone, and some people on fintwit have called the price action in recent weeks a capitulation, and think the bottom is in. Depending on what the rest of 2025 looks like, I’m not so sure.

A Detour Into Recent Events

The market has taken everything related to oil out to the woodshed recently, but I’m curious to see how all of this plays out. If oil is only in the mid-60s after the recent announcement that OPEC is going to bring supply back in April, and Trump’s “drill, baby, drill” bit in his speech the other day, it will be interesting to see if the selloff continues, or if things firm up heading into the summer driving season. Sentiment on oil is still bombed out, and it’s even worse for the people that own offshore oil services. I know oil bears think we are going to $40 or $50 a barrel, but they refuse to connect the dots to what that would do to US shale production, and quickly due to decline rates, but I would be surprised if we get a massive flush in oil from here (famous last words).

HFI Research

’s recent piece below is definitely worth a read if you have time.

---

---

(WCTW) Short-Term Pain For Long-Term Gain? Yeah, But How Much Longer!

---

From several people that I talk to or listen to, I also think it’s worth keeping an eye on Europe right now. As I talked about recently with

VBL

and Veles from RogueNews, gold has continued to flow out of Europe into the United States. Europe seems to be gearing up for war if you read some of the media headlines, or look at Germany’s plan to ramp defense spending (or the stock charts of some of the European defense companies). I said in January that I thought Ukraine would likely come to a resolution this year, but now I’m starting to think that might not be the case.

I have talked to several people that think Europe is going to go all in for a variety of reasons, but I think the geopolitical picture could get very interesting, very quickly this year. The other thing that has been on the backburner as far as media coverage and attention is what is going on in the Middle East. From a couple different conversations with people that are more plugged in than I am on that front, they basically said that they wouldn’t be surprised if the situation there flares up again. I have said several times that geopolitical uncertainty isn’t a reason to be structurally bullish on oil, but I think both areas of the world are worth keeping an eye on over the next several months.

Food For Thought