2019 OCTG Forecasts: Merry & Bright or Ho-Hum?

 

Encana-Rig&Pipe The Piceance basin in northwest Colorado

Photo Courtesy ©Encana Corp. All rights reserved.

Susan Murphy | The OCTG Situation Report

Susan Murphy Publisher + Editor-in-Chief

’Tis the season and it’s tradition for us to start it by ringing in our forecast of all things OCTG for 2019. As we began checking off our list of oilfield indicators in early November it appeared that our projections, starting with WTI, would be of good cheer. We were midway through our predictions when the White House threw in a lump of coal—a reprieve from Iran sanctions for eight countries—roiling oil markets on concerns of oversupply and potentially dashing our merry and bright expectations for OCTG in the new year. 

Whatever the case, the newfound volatility in oil prices forced us to reconsider a few metrics since a ho-hum oil forecast could slay our otherwise optimistic outlook. In terms of OCTG consumption, oil has been the gift that kept on giving for the past year. On December 6 and 7 OPEC plans to meet to determine where to go from here but based on the outcome of an earlier meeting on November 11, Saudi Arabia announced plans to cut their production in December; a move that was seen as a measure to halt the impending market slump. In order to proffer a forecast we are working on the assumption that the waivers issued to the eight countries that purchase Iranian oil were timed for the midterm election cycle, will be limited in scope and will ultimately result in stifled Iranian oil supplies longer term. With that said, we’re going to trim our more bullish oil price average for 2019 and hold it closer to ~$60/bbl. Fortunately, operators are generally better prepared for $55 – $60 oil than they were four years ago and US producers who locked in oil hedges for their production in 2019 are the least concerned. Our expectation for nat gas is in line with many consensus views, between $2.85 – $3/MMBtu; neither feast or famine for either commodity. When it comes to E&P Capex and how it plays into OCTG consumption, most would say, “the more the merrier.” On that note, tidings from Evercore ISI suggest North American operator budgets will rise ~+15% Y/Y while Cowen & Co recently adjusted their original +12% forecast for US spending to “flat to +15%” weighted toward 2H19 with the potential to increase if WTI shows greater stability and when Permian constraints are lifted. Both are based on WTI at $60/bbl. 

During their Q3 earnings call, Jeff Miller, Halliburton CEO, reported they were already seeing OFS demand rebound for crews when budgets reset and completions programs hit full steam in 2019. Oilfield research firm Infill Thinking believes that well completions in the US are on track to be ~16K this year, heading to ~19K in 2019, an increase of +19%. These mostly generous declarations should help to goose the rig count; our view is an average of 1,088 (+6% Y/Y) versus the present year at ~1,026 (+17% Y/Y). All of these metrics are supportive of further OCTG consumption growth in the coming year. Our forecast is provided in our November Report.

We analyzed OCTG pricing trends for Q4 into 1H19 in our September Report. Hot rolled coil remains elevated currently but is likely to average somewhat less per ton than 2018s annual average in 2019. However, if the US Mexican Canadian Agreement goes into effect in 2019 and 232 tariffs are lifted for either country more uncertainty could ensue.  

While predictions that tubing supplies would tighten between Q3 and Q4 didn’t materialize we still believe that they might. First, the prospect of a downshift in the Permian had many operators building DUC inventory, which is likely to result in accelerated completions activity in 2019. This, of course, provided WTI prices stay at or above $60/bbl. When considered with the OCTG quota on South Korea, from whom 63% of the tubing market was supplied in 2017, along with the likelihood of stronger penalties stemming from the second administrative review of the antidumping order on their OCTG imports, the threat of supply tightness becomes more real. Added to this is the significant draw on tubing inventories we noted in our Q3 Inventory Report, a hint that some upstream operators wanted to jump ahead of the fray. We will watch this metric closely again when we publish our 4Q18 OCTG Quarterly Inventory Yard Survey results in January 2019. 

There may not be a gravy train in sight for OCTG next year but 2019 certainly won’t be a turkey either. And for that we can all be thankful. 

Photo Courtesy ©Encana Corp. All rights reserved.

Posted in OCTG, OCTG 2019 Forecast | Tagged , , , , , , , , , , , , , , , , , , | Leave a comment

Oil Patch Confidential: 3Q18 OCTG Inventory Yard Survey

Photo Courtesy U.S. Steel Tubular Services

 Photo Courtesy U. S. Steel Tubular Services

Susan Murphy | The OCTG Situation Report

Susan Murphy Publisher + Editor-in-Chief

“It is a capital mistake to theorize before one has data.” ~Sherlock Holmes. Holmes clearly understood that having data to back up one’s conclusions is paramount and our exclusive quarterly OCTG inventory yard survey is further proof of this fact. Our inventory investigation and analysis is the only one of its kind in the world and serves as a bellwether of OCTG health throughout every segment of the supply chain.

Zeroing in on the Outcome 

Herewith we present the evidence leading to our determinations. 3Q18 presented a turn for the better offering a welcome break from the past six consecutive quarters of surplus supply. For the period ending 9/30/18, “prime” OCTG inventories contracted -4% throughout the lower 48. “Tri-state” (TX, OK, LA) OCTG inventories dropped -6% with the bulk of decreases seen in the mill/processor segment where stocks have been building for the past five quarters. OCTG inventories outside the tri-state region advanced +5% in Q3.

The Plot Thickens then Thins

Coming on the heels of a quarter where every OCTG category throughout the tri-state increased but one, we observed declines in all categories in Q3. Seamless stockpiles that have posted gains over the past four quarters retreated -7% Q/Q, welded products lagged far behind in destocking. The culprit? A lesser build in ERW materials over the quarter (both imports and domestic shipments) as well as the greater use of more seamless (premium) products for longer laterals. Digging deeper revealed stockpiles of alloy receded -5%—this after six consecutive quarters of sizable increases. Casing, which like alloy saw six consecutive quarters of gains, shrank -5%. Inventories of tubing that have remained stubbornly high ticked lower this quarter: -11%. Could it be end users are getting spooked by the drastic drop in tubing imports and buying before they’re left out in the cold? We’ll be discussing this in detail in our November OCTG Situation Report. In any case, our separate inventory survey of select distributors detected a nominal quarterly bump going into Q4. This finding—along with a small percentage build in E&P inventory ownership—confirmed our hunch that the bulk of the inventory draws in Q3 went downhole, providing a boost for Q3 quarterly consumption.

Our OCTG M.O.

So now you have some idea of the quarterly stats that we reported in our October OCTG Situation Report but here’s where it gets real and the real reason that accuracy in inventory matters. Because once we’ve collected all the surveys and input data from 125 OCTG yards throughout the lower 48 supply chain we can piece together the puzzle that allows us to provide readers with the most accurate measure of critical oil patch metrics: consumption and months of supply.

Cracking the Code on Consumption

Based on our thorough examination of Q3 inventory intel, we can now deduce that apparent consumption for the remaining months of 2018 will plateau, leading us back to our original (lower) consumption forecast issued in November of 2017. The reasons for this verdict are manifold. The most concise explanation is that six consecutive quarters of inventory increases—including the steepest quarterly hike since March 2009 in 2Q18—weighed heavily on consumption this year disrupting normal market trends. Despite diminished import shipments due to the 232 (-4% YTD compared to prior YTD); domestic shipments, while considerably higher YTD as of August (+36% compared to prior YTD), were somewhat muted Q/Q due to abundant inventory stockpiles reducing the need for restocking in addition to reports of moderately softer mill demand considering the level of activity in the oil patch. With one quarter left until the year’s end there simply isn’t enough time to mount a solid recovery especially when market participants are fixated on a combination of E&P capital austerity and notable budget exhaustion not to mention December 31 inventory targets/ad valorem taxes. All of these trickles down and pushes down on apparent consumption as is illustrated in the middle table on the last page of every Report. 

Jumping to Conclusions

The operative word when it comes to consumption remains “demand.” No mystery there we suspect most would declare. The good news is that 2018 OCTG consumption is still expected to be up Y/Y. Further, we anticipate that the consumption growth that was constrained due to the facts presented in our editorial this month will be deferred to 2019 provided inventories continue to ease and commodity prices remain resilient, something we look forward to witnessing. Case closed…until next quarter.

 Photo Courtesy U. S. Steel Tubular Services

Posted in 2018 E&P Budgets, E&P spending, Energy, Hot Rolled Coil, HRC, Inventory, OCTG Consumption & Pricing, OCTG domestic shipments, OCTG Imports, OCTG inventories, OCTG Inventory Survey, OCTG mill, OCTG Mills, OCTG Pricing, OCTG Processors, OCTG Producers, OCTG Spot Prices, Oil & Gas Industry, Oil & Gas Pricing, Oil Country Tublular Goods, Oil Patch, Oil Services & Equipment, Onshore, Permian Basin, Q3, Seamless Pipe, Section 232, steel industry, Steel Tarrifs, Third Quarter, Tubular Goods, upstream OCTG | Tagged , , , , , , , , , , , , , , , , , , , , | Leave a comment

OCTG Price Forecast: The 64K Dollar Question

Photo Courtesy Tenaris - Bay City - September Cover

Photo Courtesy Tenaris

Susan Murphy | The OCTG Situation Report

Susan Murphy • Publisher + Editor-in-Chief

“It is far better to foresee even without certainty than not to foresee at all,” ~Henri Poincare, author of “The Foundations of Science.” With a greater line of sight to the year-end and a better grip on the impact of the 232 we thought it would prove prescient to revisit our thinking on OCTG pricing for Q4 and into 2019 as the E&P forecasting season is upon us. 

The results of this month’s distributor spot market pricing survey made it clear that the 232 won’t add near as much to the bottom line as most were expecting—at least in 2018. And the meager increase M/M won’t dent operator pocketbooks as much as it will the morale of the supply prognosticators but it does point to pockets of underlying strength in the market. The bigger surprise for most is tubing’s unyielding drag on the composite price at this point in the year. 

So why the upset? Part of the blame can be aimed at copious amounts of pre-232 inventory. Our exclusive 1Q18 Inventory Yard Survey (April Report) showed a record hike in quarterly tubing inventories: the largest gain we’ve witnessed Q/Q since the Chinese import surge in 1Q09. That was followed in 2Q18 with another healthy increase—not a record, but nothing to brush aside when you consider the volume of tons in relationship to the lighter weight of the material. The other part of the equation can be found in the prolific oil-producing Permian where the number of DUCs almost doubled in the last year. The EIA reports that total DUCs jumped to 3,470 in August, up 32% from January. This run-up in DUCs comes as a result of multiple constraints: trucking, sand logistics, labor, fresh water sourcing and pipeline capacity (a setback until 2H19) among them. With well completions deferred in the mother of all shale basins, tubing demand was destined to take a hit. But not forever. Let’s remember that tubing has been a mainstay of the import market and few domestic mills have been incentivized to produce it. Ultimately, the convergence of tightening inventories, crimped imports and lack of domestic supply in the case of certain items will show up on the books. 

All things considered, we don’t see a meaningful increase in the composite price index before next year. With elevated inventories, Capex budget exhaustion, moderating raw material costs and year-end tax considerations top of mind we don’t expect to see prices improve much by December. 

Readers have suggested it’s never too early in the year to offer a preliminary forecast for 2019; and thus we go into considerable detail in our September market intel [LINK HERE]. We will revisit our forecast again when we organize our November Report and tender our read on the metrics that matter for the coming year. 

Taken as a whole, the 232 offers the domestic OCTG market a greater opportunity to profit in 2019. On the flip side, there’s the chance that increased domestic capacity, production and improved utilization rates along with lower input costs will keep prices in check. These two opposing forces will battle it out as long as the 232 as we know it today is in place. 

We end our editorial this month the same way we started, with a quote that pretty much sums up the present situation based on the unpredictability we’ve experienced in the oil patch this year. Simply put, “The future isn’t what it used to be!” 

Photo Courtesy Tenaris

Posted in Crude Oil Prices, Department of Commerce, DUCs, E&P, E&P spending, Energy, OCTG, OCTG Imports, OCTG inventories, OCTG Mills, OCTG Pricing, OCTG Processors, OCTG Producers, OCTG Spot Prices, Oil & Gas Industry, Oil & Gas Pricing, Oil Country Tublular Goods, Oil Patch, Oil Services & Equipment, Prime Pipe, Section 232, steel industry, Steel Tarrifs, Tubular Goods, upstream OCTG | Tagged , , , , , , , , | Leave a comment

OCTG at Crossroads?

Credit-Ole Jørgen Bratland-Copyright-Equinor-August 2018 Blog

Photo Equinor (formerly Statoil) Courtesy Ole Jørgen Bratland ©Equinor

Susan Murphy

Susan Murphy Publisher + Editor-in-Chief

Baseball Hall of Famer and philosopher Yogi Berra said it best: “If you come to a fork in the road, take it!” And so we forge ahead into the second half of the year despite the occasional speed bumps and obstacle course we fondly call the oil patch. 

Interestingly, “patchy” seems to be the operative word when it comes to describing current market sentiment. The paradox is that overall demand continues reasonably steady and drilling operations have remained resilient notwithstanding growing concerns in the Permian and the 232 looming large. 

With freewheeling pipe inventories, OCTG prices stuck in neutral and escalating raw material costs causing consternation for welded suppliers, many view the 232 as the gift that keeps on ‘taking.’ Part of this equation was revealed in our Quarterly Report last month. The unpredictability of the 232 including the outcome of thousands of exclusion requests is weighing on the minds of suppliers wanting to unload inventory backlogs before the year’s end; many of whom seem more willing to wheel and deal. This in turn is curbing OCTG prices that have been essentially gridlocked since April. And six months into the year domestic pipe shipments are still taking a back seat to imports.  

As we’ve discussed in recent Report’s there are many moving parts to the market in which we find ourselves; one that is simultaneously exciting, challenging and confounding. In times like these it helps to keep one’s wits about oneself, for this moment may prove to be the calm before the storm. Let’s not forget the country that has held the top spot for OCTG imports seven consecutive years running, South Korea, has a quota in place that limits its import tonnages for 2018 significantly and they’re close to filling this year’s quota now. Last year Korean OCTG imports were greater than 1MM st. Meanwhile, we’re forecasting consumption will rise by double-digits in 2018. I guess we don’t have to tell you that some parties will be impacted when the ship hits the fan! 

And while there are still folks who believe other countries can make up the difference in tubing and surface casing this year, we’re here to tell you that most foreign mills view the 232 as a minefield and don’t want to risk ramping up only to have the goalposts moved. This is all to say deficits in supply of certain highly desirable imported mainstays can be expected by the fourth quarter and prices will rally to meet them.   

We close out this month where the rubber meets the road noting that U.S. apparent consumption registered 23% higher than last year at this time and just shy of half of our consumption forecast for 2018. While we can’t promise a smooth ride to the finish line we can say there are enough bullish signals to suggest the market is on the right track. 

Photo Equinor (formerly Statoil) Courtesy Ole Jørgen Bratland ©Equinor

Posted in Energy, ERW Pipe, Hot Rolled Coil, HRC, Inventory, OCTG, OCTG Consumption, OCTG Consumption & Pricing, OCTG domestic shipments, OCTG Exports, OCTG Imports, OCTG inventories, OCTG Mills, OCTG Pricing, OCTG Processors, OCTG Producers, OCTG Spot Prices, Oil & Gas Industry, Oil & Gas Pricing, Oil Country Tublular Goods, Oil Patch, Oil Services & Equipment, Onshore, Permian Basin, Prime Pipe, Seamless Pipe, Section 232, steel industry, Steel Tarrifs, upstream OCTG | Tagged , , , , , , , , , , , | Leave a comment

2Q18 OCTG Inventory Yard Survey: Who Turned Up the Volume?

Photo Courtesy Vallourec

Photo Courtesy Vallourec

Susan Murphy PublisherDrum roll, please…the results of our exclusive quarterly OCTG inventory yard survey is here. The objective of this endeavor is always the same: to measure demand for upstream pipe throughout the supply chain across the lower 48. The question is, did 2Q18 end on a high note or were we left singing the blues? The answer is somewhat involved. A portion of our analysis that was published in this month’s Report follows. The key point is inventories ended higher than anticipated but shouldn’t be cause for concern—yet.

Q2 “prime” OCTG inventories advanced +6% in the most recent quarter with the bulk of increases driven by mill/processors beefing up reserves as a hedge against the 232. Total quarterly inventory tons this period ranked closest in count to inventories last seen in 2Q15. That was just after reaching the highest OCTG inventory volumes ever logged during 1Q15. A record build that followed on the heels of the oil market downturn and was exacerbated by an import surge in 1Q15, coupled with considerable quantities of domestic OCTG that continued after domestic manufacturers volumes reached their apex in 4Q14.

2Q18 offered a number of opportunities for historical comparisons. For starters, alloy stockpiles charged to the fore Q/Q. This was the largest quarterly jump in alloy inventories since 1Q09 when imported goods from China flooded the market. Domestic producers were also riding the high shipment tide leading up to that disconcerting state of affairs. The current alloy hike is the result of an acceleration in production from domestic mill/processors: a combination of domestically rolled pipe and heat-treated carbon imports. Inventories of casing also registered a hefty climb in 2Q18, posting the largest quarterly increase (outside of third quarter adjustments) since 2Q10 when the market was climbing out of the recession. Seamless products came in third on the list of big movers this quarter; the greatest Q/Q increase since 1Q09. Carbon materials were the only product that lost ground (again) this quarter, posting a nominal decrease in Q2.

We’ve laid out some of what took place this past quarter from a historical perspective now let’s use what we know to analyze what it means for the coming months. Inventory doesn’t occur in a vacuum, there are numerous factors that lead to the changes we report. The threat of the 232 decision (pre-March 2018) had the effect of fueling a resurgence of imported OCTG as well as lighting a fire under domestic mills that saw the potential for shoring up market share. All the while oilfield activity has remained steady, propped up by healthy commodity prices making it challenging to predict the impact on inventories heading into Q2. Throughout Q2 we’ve reported a “time out” of sorts relative to OCTG pricing. The apparent lull in buying has a great deal to do with advance purchases (pre-232) of pipe, which isn’t necessarily a bad thing. Buyers sitting on adequate supplies are averse to buying “high,” preferring to wait until the market acquiesces to their thrift, which is holding OCTG pricing hostage for the time being. Pipe mills possessing sizable inventories are particularly sensitive to fluctuations in the buying cycle as they are eager to fill available capacity. Meanwhile, average rig counts continue to crawl upwards but the slope of the rig count has begun to flatten.

All of these forces pressure suppliers to work even more aggressively to reduce inventories in view of presumed lower year-end drilling activity alongside exhausted Capex budgets and ad valorem taxes. Plus, the current delta between ERW prices and welded raw material costs (HRC) doesn’t incentivize domestic welded mills to add shifts. When you further consider the tons that will be eliminated from this year’s OCTG import totals, the potential for supply disruptions or marked drawdowns in inventory become apparent—and more amplified if commodity prices and oilfield activity continue strong. Clearly a mixed bag of possibilities at play for the back half of the year. Buyers beware!

If the projected Y/Y increase in US Capex and sustained $60+/bbl WTI forecasts hold true, chances are we’ll end the year on a good note in any case: music to our collective ears.

Photo Courtesy Vallourec

Posted in Crude Oil Prices, E&P, E&P spending, Energy, ERW Pipe, Hot Rolled Coil, HRC, Inventory, OCTG, OCTG CAPEX, OCTG Consumption, OCTG Consumption & Pricing, OCTG domestic shipments, OCTG Exports, OCTG Imports, OCTG inventories, OCTG Inventory Survey, OCTG mill, OCTG Mills, OCTG Pricing, OCTG Processors, OCTG Producers, Oil & Gas Industry, Oil & Gas Pricing, Oil Country Tublular Goods, Oil Patch, Oil Prices, Oil Services & Equipment, Onshore, Prime Pipe, Q2, Section 232, steel industry, Steel Tarrifs, Supply Chain, Tubular Goods, U.S. HRC Spot Price, upstream OCTG | Tagged , , , , , , , , , , , , , , , , , , , | Leave a comment

Will The 232 Rain On The Oil Patch’s Parade?

EPEnergy June 2018 Cover crop 150dpi_edited-1

Photo Courtesy EP Energy

Susan Murphy PublisherMaybe it’s the heat, maybe it’s the market but this month everyone in the oil patch seems to be fired up about something. Fortunately for us they’re talking; offering an insightful barometer of upstream confidence throughout the supply chain. Foremost among the “hot topics” is the Section 232, which shows no signs of running out of steam anytime soon. As it stands right now the EU, China, Russia, Mexico and India have all filed dispute settlement cases against the US for its 232 tariffs via the World Trade Organization. These are in addition to the retaliatory measures that have been brought forth by the same five countries. Other countries including Japan, Russia and Turkey have warned of potential retaliation but haven’t released formal documents. Congressional efforts to “gain authority” over the Section 232 decision will be discussed in a hearing set for June 20. 

Meanwhile, our June confabs ran the gamut from the administration’s unpredictability to the need for mills to make hay while the sun shines. Most of the concerns boiled down to the inability of participants to plan ahead; leaving many in a quandary over the “optimum inventory” for the yearend. This month’s conversations also highlighted operators’ categorical resolve to live within budget and how OFS inflation could dampen activity. 

Insofar as inventory levels are concerned, historically there has only been seven quarters that exceeded 1Q18 ending inventories. The record levels were recorded between December 2013 and June 2015 when two significant events converged to create a perfect storm: a tsunami of imports and the downturn. Current elevated inventories will serve as a buffer as the tide of imports is stemmed. 

Our well ’versed’ responders were of the mind that pipe shortages in 2H18 will be few and far between due to the steady pace that’s allowing mills to ramp up capacity (where available) and build inventories in advance. Lack of domestic availability was behind the surface casing item that received the most mentions in terms of potential scarcity. Tubing as a category also received top billing but more so as it related to anticipated price hikes: again this is due in large part to the difficulty in domestic sourcing. Opinions were decidedly more mixed when it comes to pinning down a time for pricing increases. We discuss specifics in this month’s OCTG Situation Report.

When queried about issues outside of the cacophony of the 232 there was definitely a degree of bullishness from most parties. The overriding driver of positivity is the likelihood that worldwide oil demand will continue to rise provided there are no black swans on the horizon. With OPEC now more inclined to promote ‘higher’ for longer and international spending/exploration at historic lows, the global market is increasingly dependent on the US for oil. This should help sustain the crude rally over the next couple of years. 

With that said, if you can’t stand the heat get out of the oil patch. For the time being, this market is piping hot! 

Photo Courtesy EP Energy

Posted in Crude Oil Prices, Department of Commerce, E&P, Energy, OCTG, OCTG Exports, OCTG Imports, OCTG Mills, OCTG Pricing, Oil & Gas Industry, Oil & Gas Pricing, Oil Country Tublular Goods, Oil Patch, Oil Services & Equipment, Onshore, Prime Pipe, Seamless Pipe, Section 232, Steel Tarrifs, upstream OCTG | Tagged , , , , , , , , , | Leave a comment

Surviving Post-Traumatic ‘232’ Disorder

Southwestern Energy Corp

Photo Courtesy Southwestern Energy Corporation

Susan Murphy PublisherAs we barrel ahead toward summer in the oil patch there’s an intermittent up-stream of opportunities for various sectors of the supply chain that are in a position to capitalize on them. Be that as it May, suppliers of OCTG have reported suffering a little post-traumatic ‘232’ disorder.

In this regard, the market is having a “wait and see” moment as 11th-hour reprieves were handed to Canada, Mexico and the European Union, all of whom now have until June 1 to negotiate exemptions from the 25% US steel tariffs that are in effect for all other nations except South Korea. South Korea—the only country where agreements have been finalized—has accepted quotas in lieu of tariffs. We discussed this arrangement in detail in our April 2018 Report. Since that time, it has been determined that the South Korean quota is retroactive to January 1, 2018, that quotas are not transferrable among products and the US will block any imports from Korea that exceed the country’s quota ceiling: 30% of which can be imported in any given quarter. Imports above the quarterly threshold will be temporarily stored at numerous bonded warehouses across the US. Options after the total quota limit is reached include warehouse, foreign trade zone, exportation, or destruction. It should be noted that Korea is rapidly closing in on its OCTG quota threshold: as of Monday, May 21 there is only ~119K st left for importation for 2018.

Most recently the US agreed in principle to quota arrangements with Argentina, Brazil and Australia but details have not yet been published. The process promises to be protracted as more than 10,000 exclusion requests have been filed thus far and that is only the half of it. On May 17, it was announced that the EU is set to impose a 25% “rebalancing” trade tariff on $3.3bn of US goods June 20 with an additional $4.2bn worth of US goods seeing tariffs ranging from 10 – 50% on March 23, 2021 if they don’t receive an unconditional and permanent exemption from the tariffs. The EU has a greenlight to implement the tariffs unless the Council for Trade in Goods disapproves. The initial tariffs are said to hit a variety of US agricultural, tobacco, textile, steel and many other products. The second wave of tariffs will expand on that list. Beyond that development, US ally Japan has signaled its intent to pursue retaliation through the WTO in response to the tariffs equal to $450MM in affected trade, stating that their high-value steel and aluminum products have never “been a threat” to US national security. China and India have made similar arguments to the WTO as well. Whether or not the WTO can grant relief for countries intent on challenging the 232 remains to be seen. Moreover, the WTO dispute settlement system is tedious at best.

Meanwhile, back at the ranch, drilling continues to hum along propelled by OPEC’s efforts to curb output in addition to unstable geopolitical events. US operators, especially those unbound by hedges that prevent them from capturing the value of the rally, are having a field day gushing over the opportunity to make hay while the sun shines. Regardless of the current reality, due to the boom and bust nature of the business, apocalyptic admonitions go with the territory. Foremost among them is the concern that rising DUC (drilled but uncompleted well) counts—currently the highest since mid-2016 could be an unwanted disruption in a volatile oil market. However, the potentially destabilizing force of rapid deployment of DUCs or even an over-enthusiastic drilling response could easily be hampered by the lack of Permian takeaway capacity, transportation bottlenecks, and/or tight availability of frac crews/sand along with unmitigated cost inflation. Despite these challenges and pledges of capital austerity, five months into 2018, E&P C-suite sentiment is mostly, “Damn the torpedoes! Full speed ahead.” This, of course, is propitious for suppliers of OCTG who stand ready to keep things rolling.

All of this leads us to our consumption forecast update for 2018, provided in our May  Report; which while in keeping with the fervor of current drilling activity is tempered by some of the challenges mentioned in our editorial above. 

As we peer across the OCTG landscape most of the major market indicators remain encouraging. Once E&P spending surveys are updated next month and we present our 2H18 outlook, we’ll be able to confirm speculation that upstream spending is on the upswing. For now, it’s safe to say, all’s well that ends well come what May.

Photo Courtesy Southwestern Energy Corporation

Posted in 2018 E&P Budgets, Department of Commerce, DUCs, E&P, E&P spending, Energy, ERW Pipe, Hot Rolled Coil, HRC, Inventory, OCTG, OCTG Imports, OCTG inventories, OCTG Mills, Oil & Gas Industry, Oil & Gas Pricing, Oil Country Tublular Goods, Oil Patch, Oil Prices, Oil Services & Equipment, Onshore, Pipe, Seamless Pipe, Section 232, steel industry, Supply Chain, Tubular Goods, U.S. HRC Spot Price, upstream OCTG, WTI prices | Tagged , , , , , , , , , , , , , | Leave a comment