Oil prices extended their rally on Thursday, with Brent crude reaching a three-week high of $92.82 per barrel, as investors weighed immediate geopolitical risks against a potential long-term supply boost from Venezuela. The 1.3% gain marked the fifth consecutive session of advances, driven largely by ongoing instability in the Middle East and concerns over shipments through the Strait of Hormuz.
In a separate development, SLB N.V. (NYSE: SLB) detailed a strategy that could significantly expand its operations in Venezuela. The company said it has the capacity to bring as many as 15 rigs back into service within a year, a move that would multiply the country's active onshore rig count by up to 7.5 times from the current level of just two rigs at the end of July. While this presents a substantial service-revenue opportunity for SLB, analysts note that it offers limited immediate relief for oil buyers.
Market Overview
At 08:13 GMT, Brent crude for October delivery was trading at $92.82, up 1.3%, while WTI September futures rose $0.92 to $86.75, set to expire later in the day. The more liquid October WTI contract climbed 1.3% to $85.52. The price surge comes as U.S. crude stockpiles increased by 4.4 million barrels last week, while distillate inventories fell for a third consecutive week, according to Reuters data.
UBS analyst Giovanni Staunovo commented, “Lower oil exports from the Middle East are once again tightening the oil market.” The region's crude flows through the Strait of Hormuz, which accounted for nearly 20% of global demand before the Iran conflict, have been significantly reduced. Venezuela currently produces approximately 1.25 million barrels per day.
Venezuela Rig Expansion
SLB's plan involves restarting up to four rigs by the end of 2026, with the potential for all 15 to be operational within a year. The company's regional president, William Antonio, expressed confidence, stating, “I'm sure these rigs will be fully busy in less than a year.” He noted that smaller workover units are expected to be deployed first, with the pace depending on agreements with producers.
However, challenges remain, including permits, transportation, and power supply issues. David Reed, an executive at Weatherford International plc (NASDAQ: WFRD), also highlighted legislative and contract hurdles. July rig-count data was provided by Baker Hughes Company (NASDAQ: BKR).
SLB's Financial Position
SLB is benefiting from a broader regional upswing, with second-quarter revenue from Latin America increasing 12% sequentially to $1.71 billion, representing 19% of total group revenue. Offshore activity in Brazil, Guyana, and Mexico drove most of this growth. The company's total revenue reached $8.97 billion, with free cash flow of $716 million.
SLB shares closed Wednesday at $53.55, up 0.6%, and advanced another 0.5% to $53.82 in premarket trading Thursday. The average analyst price target suggests a potential upside of around 15%, with ratings from firms like UBS, J.P. Morgan, Goldman Sachs, Evercore ISI, and Morgan Stanley all at Buy.
Implications and Risks
While the Venezuela opportunity is significant, the market's immediate focus remains on supply constraints. The reactivation of rigs would not immediately translate into increased oil output, as production ramp-up takes time. Moreover, the plan is subject to contract approvals and operational readiness.
Risks include potential delays due to permit issues, legal safeguards, or infrastructure gaps. Additionally, if Middle East production recovers, oil prices could decline, reducing the value of SLB's rig option. The next stage is execution: activating four contracted rigs would double July's baseline, and until that milestone is reached, the 15-rig target remains theoretical capacity.
