September marks the beginning of the new fall season and we’re running down the potential hits and misses leading up to the anticipated “cliffhanger”: the final quarter of the year. The action-packed line-up includes the announcement of two new domestic OCTG mills. Yes, the stage has been set for a reality show-down. How it will play out is anybody’s guess.
No mystery here: distributors, who are seeing the market as “mostly flat” through the year-end, aren’t sure what to make of the mill announcements. In an effort to maintain our OCT-G rating we’ll simply say, “less is more” on the subject of the barrage of domestic pipe capacity coming on stream. It’s enough that import tonnages are running amok again. The only antidote for this high-wire act seems to be nerves of steel.
Turning to other signals from the oil patch, obviously geopolitical tensions in Syria have pumped up the price of oil. The difference this time is that our own domestic output is softening the blow. Talk about “Breaking Bad.” We can hardly Curb our Enthusiasm. This is just one of the many positives arising from the shale revolution that has helped to spike crude oil production to the highest level since early 1992. At the same time, exports of U.S. natural gas are helping to likewise cushion global markets and the potential for more exports is near. Unfortunately, gas drilling has yet to benefit. With prices still south of $4 per MMBtu it will be a while before OCTG is “cooking with gas” again.
Lest we be seen as bearers of bearish news, our September Report points out that it’s not all doom and gloom in the oil patch. 2013 may not be a rerun of the best of 2011-2012 but the OCTG network is still strong and the future’s worth watching.