September has arrived, time to turn the page on another summer and write a new chapter in OCTG. We’ve gathered our ‘OCTG-U’ profs to review what we’ve learned thus far, crunch the numbers and chart the course for the last trimester of the year.
We can’t help but be encouraged as many of the key barometers of oil patch health are on the rise, improving market sentiment. U.S. drilling permits, well completions, rig activity, E&P spending; even distributor resale prices have changed trajectory over the past couple months. A sure sign things are looking up is the down arrow indicator on U.S. OCTG inventories. Fact is, a drop in inventories has eluded the industry for what seems like ancient history or in this case since June of 2013.
Inventory reductions often engender rising prices and that’s what we saw this month. However both were rather modest. For the moment, predictions about the outcome of the ITC ruling, while the subject of much conversation, are mostly academic. Appeals have followed from both sides and the full ramifications haven’t hit home in our opinion. There’s still a fair amount of pre-trade OCTG that needs to work its way through the supply chain before any solid conclusions can be drawn. Discussion on OCTG pricing and factors that could mitigate significant hikes are discussed further in this month’s Report.
In any case, distributors seem to be a pretty bullish bunch for the moment, at least as far as demand is concerned. Growth has been labeled “significant and steady over time.” Domestic mill price increases are anticipated and expected to stick. Announcements continue to trickle in as the marketplace negotiates the new normal. The mills are booking out or booked out, while premium threading capacity is solid through the first quarter of 2015.
While hydrocarbon pricing is one of the few ‘downers’ in an otherwise upbeat market, the likelihood of WTI prices drifting much lower than $85/barrel in the short term is fairly remote and the horizontal oil rig count is proving resilient. The price of nat gas could rise ever so slightly with the coming winter months but isn’t expected to change-up the gas-directed rig count much for the balance of the year. You don’t need a cheat sheet to determine that drilling activity is a bright spot in the oil patch.
This leads us to yet another conclusion. We’ve studied the current market, done the math and feel confident that OCTG consumption will exceed our original forecast for the year. Make no mistake; The OCTG Situation Report card is out and the Class of 2015 is positioned to make the grade.