In a new report, Citi Research analyst Scott Gruber discusses the lingering deflationary environment for U.S. Oil Services stocks. Citi now expects that U.S. shale well prices will be lower than they previously forecast through 2016, but the firm believes that investors should take advantage of the cyclical pricing downturn by buying industry-leading names.

New Forecast

Citi previously called for a 20-25 percent drop in the average cost of a U.S. shale well in 2015 and up to another 3 percent decline in 2016. However, the firm now projects about a 30 percent drop in pricing in 2015 with 5-10 percent further downside in 2016.

Citi is now calling for 40 percent declines in stimulation pricing and 20 percent deflation in equipment pricing.

Secular Vs. Cyclical

From an investment standpoint, the most critical question is…

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