Tis the season: the time when we sift through stacks of data in order to provide some grist for the mill. No one is immune to the pitfalls inherent in prognostication, even Yogi Berra is noted for saying, “Prediction is very hard, especially about the future.” That said, we aim to separate the wheat from the chaff and offer some guidance going into the new year.
We’ll start by crossing off “feast or famine” from the list of possible scenarios for 2014. The reality of the coming year is more about determining the new normal; a middle ground of sorts where everyone can enjoy a piece of the pie.
In this month’s Report we take a look at the composition of OCTG consumption. A few of our thoughts are shared here. Our forecasts for next year’s CAPEX budgets, rig count and consumption can be found in November’s Report along with all of the vital OCTG stats that our subscribers count on monthly.
We begin by examining commodity pricing, the jumping off point for drilling activity. The EIA expects that WTI crude oil prices will average $95 per barrel for 2014, about 5% less than 2013 but still highly priced historically. Rising U.S. oil supply and a stronger dollar is contributing to the lowered prices. Natural gas prices are projected to climb from $3.68/MMBtu this year to $3.84/MMBtu next year. When viewed together this makes for a pretty solid foundation from which to build a case for increasing OCTG consumption. Then there’s E&P spending which oils the wheels of this industry. After a mostly flat 2013, CAPEX budgets are anticipated to gather steam in 2014.
While imports remain a bone of contention, the domestic marketplace hopes to spell “relief” via a satisfactory resolution to the anti-dumping trade case that was filed earlier this year. Adequate duties and proper enforcement should help to restore some equilibrium to the oil patch in 2H14. Combined with the ensuing domestic capacity expansion, a mix of oil and water if ever there was, anything less could be a recipe for disaster.
Now when it comes to OCTG pricing, there’s simply no sugarcoating it, distributor market prices have been trending down for the better part of the last two years. So yes, there’s plenty to chew on going forward.
Bottom line, let’s be mindful of our bounty: the prevailing demand. All the world’s a stage and the stage is set for a flurry of continued drilling and production. Rising offshore activity, deeper wells, increased horizontal drilling – improvements made in drilling and completion have all boosted tons per well and will continue to prop up OCTG consumption well into 2014 and beyond.
There may not be a gravy train in sight for OCTG next year (if ever there was?), but 2014 certainly won’t be a turkey either. And for that we can all be thankful.