“Data! Data! Data! I can’t make bricks without clay.” ~Sherlock Holmes.
This month we tip our cap to the most famous detective in English literature who knew, as we do, that one must have the facts in order to form sound conclusions. And thus we commence our 28th year “on the case”: investigating quarterly demand for OCTG throughout the entire supply chain. The process: our exclusive Quarterly Inventory Survey. Our cast of characters: truck terminals, mills, processors, inspection yards and a select group of distributors. The scene: the lower 48. Our motive: examining the state of the oil patch.
The evidence leading to our conclusions is presented in great detail in our January Report. FYI: the results may surprise you.
We also review clues to domestic OCTG consumption, one of which is E&P spending. Forecasts for 2014 U.S. CAPEX are readily available and vary widely. The good news is that the trend is on the upswing. While we’re apt to agree with that consensus, we deduce that spending in 1H14 will lean more toward the conservative side. A midyear pickup is more likely if oil prices climb above $100/bbl and nat gas stays north of $4/MMbtu. The usual suspects are to blame for our cautious approach to CAPEX: foremost among them is producers’ cash flow discipline.
As we move into the new year, we can’t help but see the plot thicken. For every upside going into 2014 there seems to be a potential downside that keeps us from jumping to overly exuberant conclusions. Yes, it’s true that an affirmative finding for US OCTG producers in the trade case could positively impact the domestic OCTG market. We suspect it will play out favorably but there are no guarantees. Meanwhile, regulatory uncertainty along with mounting negative public perception of fracking could thwart the shale oil renaissance. These are just a couple of the issues we pose.
In closing, it doesn’t take a sleuth to know that a vital piece of the OCTG consumption puzzle still remains intact: demand. It may not solve all the challenges ahead but it can sure help smooth the ride. Case closed…until next quarter!