This month Houston plays ringmaster to “The Greatest Show on Earth.” And in energy circles, the main attraction is this quarter’s exclusive OCTG Inventory Yard Survey. All things considered it was a banner Q2. Every three months The OCTG Situation Report ushers in the results of our survey that collects OCTG inventory counts throughout the entire U.S. supply chain. This routine involves a large troupe who count pipe at truck terminals, mills, processors and inspection yards across the lower 48. The net results of this quarter can best be summed up as a fine “balancing act” between inventory stockpiles and import tonnages.
In a quarter that was anything but routine considering almost two million tons of imported OCTG arrived in the U.S. since January, inventories saw little change from Q1 thanks to robust demand. Numerous details from our survey are presented in the charts, tables and commentary in the July Report.
Leave it to OCTG demand side dynamics to ‘steel’ the spotlight this quarter. History hasn’t always been this kind to the domestic oil patch. When the dust settled on the last OCTG trade case, demand wasn’t there and the industry took some hits while climbing out of the hole. With the favorable final ruling on the trade case from the Department of Commerce this month and the expected ratification by the International Trade Commission in August, there appears to be light at the end of the ‘pipe’ this time around. If the government is successful in enforcing the case then there’s a good chance that potential oversupply disasters can be averted. Just the same, the fact is, there’s still a lot of nascent domestic supply and there’s no guarantee that the margins levied on Korean OCTG will keep them out of the market altogether.
Fortunately, hydrocarbon pricing is holding steady, which makes it doubtful that the outcome of the trade case will dampen OCTG demand for the time being. In fact, two more E&P spending updates were released following the launch of our June Report from Barclays and Cowen & Company and both forecast increases in capex over their original expectations along with potential for even greater gains in upstream activity. Barclays is now predicting U.S. E&P spending to rise 9.6% to a record $165 billion in 2014 vs. their December outlook of +8.5%. Canada also stands to gain with Y/Y spending increases of 4.5% vs. the +3.2% originally projected. Cowen and Company’s original projections for the U.S. almost doubled from +5.3% to +9.1% Y/Y to total $154 billion in upstream spending. Canada gets in on the action moving from +1.3% Y/Y to +7.2% for a total of $38 billion according to Cowen.
Hold your applause; there’s more. With the confluence of events detailed above, we saw fit to revise our U.S. OCTG consumption forecast. In closing this month’s Report, we felt confident we wouldn’t be accused of grandstanding when we said you can expect consumption to step right up to a record number of tonnages of OCTG for 2014. Now that’s the ticket!