The heat is on and the oil patch is percolating in preparation for the second half of the year. In talking with folks throughout the supply chain it seems everyone is fired up about something. We sense full ‘June’ fever has gripped the market: a phase marked by a combination of anticipation and apprehension. No surprise as there are many balls in the air and none of them seem to be the “crystal ball” that holds the answer to one’s fortunes. And, in many cases, “fortunes” are exactly what’s at stake.
First, the final decisions in the OCTG trade case are looming. Will they or won’t they determine a duty? And if a margin is assigned, will it have teeth? Fact is if the ITC finds in favor of U.S. producers and the U.S. Department of Commerce assigns a rate above “de minimus” (2%), this will set up foreign producers for annual administrative reviews that can change the duty rate for shipments received the prior year.
Distributor market prices have started to firm in advance of the determination and it is expected that this trend will continue into the second half of the year as mills hold the line on what amounts to their capacity. Not all folks welcome this news however, and some E&P operators worry about market tightness and potential supply disruptions as a consequence of the final decision. Considering that the bulk of tonnages affected by the trade case are ERW, domestic supply shortages shouldn’t be a concern. With rig efficiencies climbing and OCTG demand escalating, distributor and mill order books are strong through Q2 going into Q3. Our June Report features additional commentary and specific charts that help put the OCTG situation in perspective through the end of the third quarter.
Adding to the promising prospects is the news from Morgan Stanley and Barclays that E&P spending in the U.S. is increasing. With hydrocarbon prices remaining favorable for increasing activity and permitting off the charts, all we can say is if you can’t stand the heat get out of the oil patch. It’s about to get piping hot!