Oilfield Services Sector Volatility: A Contrarian Buying Opportunity Amid Rig Count Declines

The oilfield services (OFS) sector is at a crossroads. While global rig counts have declined in 2025 compared to the previous year, this near-term volatility may signal a contrarian buying opportunity for investors with a long-term horizon. The sector's recent performance-marked by a 34-year high in 2023-2024-has been driven by surging global energy demand and a rebound in exploration and production (E&P) activity. Yet, as of early September 2025, the global offshore rig count stood at 373 jackups and 131 floating units, reflecting a slowdown in Middle East and North Sea activity, partially offset by gains in West Africa and South America, according to Westwood rig counts. These regional divergences underscore the sector's structural complexity but also hint at underlying resilience.

A Sector in Transition

The OFS market size reached USD 119.36 billion in 2025, with projections indicating growth to USD 177.47 billion by 2032 at a 5.83% compound annual growth rate (CAGR), according to a Datainsights report. This trajectory is underpinned by three key drivers: the exploitation of unconventional reserves (shale, deepwater), the development of mature fields, and the global energy transition's delayed impact on oil demand. According to the IEA Oil Market Report, global oil supply hit a record 106.9 million barrels per day in August 2025, while demand is expected to rise by 740,000 barrels per day this year, driven by advanced economies. Such fundamentals suggest that the sector's long-term prospects remain intact, even as cyclical headwinds persist.

Contrarian Logic in Rig Count Trends

The current rig count decline, though concerning, may represent a correction rather than a collapse. As of July 2025, the global rig count stood at 1,621.25, a 5.36% drop from the same period in 2024 but a 1.36% increase from June 2025, according to the World Rig Count. This suggests that while year-over-year momentum has weakened, month-over-month stability persists. For contrarian investors, such a pattern is telling: rig count declines often precede periods of consolidation, which can create attractive entry points when valuations normalize.

Historically, the OFS sector has thrived during periods of disciplined capital allocation. The drilling services segment, which accounts for 43% of the market, has benefited from advanced technologies and deepwater projects, as reflected in Westwood's weekly counts. Meanwhile, completion services-critical for unconventional resource development-are expected to grow at the fastest rate during the forecast period. These dynamics imply that the sector's value proposition is not uniformly affected by rig count fluctuations; instead, it is segment-specific and regionally nuanced.

Navigating Near-Term Challenges

The Dallas Fed Energy Survey for Q3 2025 highlights the sector's immediate struggles. Equipment utilization for OFS firms fell to -13.0, and operating margins remained compressed at -31.8, reflecting pricing pressures and rising input costs. However, these metrics must be contextualized. The sector's ability to maintain a 5.83% CAGR through 2030, as noted by the IEA, suggests that current challenges are cyclical rather than structural. Moreover, the unwinding of OPEC+ output cuts and robust non-OPEC+ supply have created a more competitive landscape, which could eventually drive efficiency gains and cost rationalization.

A Case for Strategic Entry

For investors, the key question is whether the current rig count decline represents a buying opportunity. The answer lies in the interplay between short-term volatility and long-term fundamentals. The OFS sector's projected growth, coupled with its critical role in meeting global energy demand, positions it as a compelling long-term asset. However, timing is crucial. A decline in rig counts often signals overcorrection, particularly when driven by macroeconomic uncertainty rather than structural shifts in demand.

The contrarian case hinges on three pillars:
1. Valuation Attractiveness: OFS stocks are trading at historically low price-to-earnings ratios, reflecting pessimism about near-term earnings.
2. Market Corrections: Rig count declines typically precede rebounds as E&P firms rebalance budgets and prioritize high-impact projects.
3. Structural Demand: Energy consumption is expected to remain resilient, particularly in advanced economies, ensuring sustained demand for drilling and completion services.

Conclusion

The oilfield services sector's volatility in 2025 is a double-edged sword. While declining rig counts and compressed margins highlight immediate challenges, they also create opportunities for investors who recognize the sector's long-term durability. The key is to differentiate between cyclical corrections and structural shifts-a distinction that favors those with a patient, data-driven approach. As the market navigates this transition, the OFS sector's projected growth and its role in global energy security make it a compelling candidate for strategic investment.