Bubble, bubble oil and trouble: it seems as though an attempt has been made to drown out the results of our Q3 U.S. OCTG Inventory Yard Survey and October Report by the dreaded sound of hydrocarbon prices dropping. We’ll address this situation in the next couple paragraphs; for now we’re seeking asylum in some better news on the inventory front.
Lest you think it’s all “doom and gloom” in the oil patch, the results of our Q3 inventory survey should take some bite out of the headlines of the day. A bit of background: oil & gas leaders worldwide count on our exclusive survey to get a good read on inventory levels of OCTG throughout the entire U.S. supply chain and a better handle on the health of the industry in general. And folks there’s nothing like the fact that inventories are heading down to raise one’s spirits. Great detail from our OCTG inventory survey can be found in the charts, tables and commentary in our October Report.
Now onto the news and subject of much debate that’s brewing from Wall Street to Main Street. Recent reports have many inside and outside the oil patch spooked as the ghost of oil price plummets past returns to haunt those faint of heart. Could this petro-fying development be the bogeyman that jinxes the spate of positivity that’s defined the year thus far? About the only thing we can say with certainty is that the timing of the current sell-off is sure to have a chilling effect on spending sentiment as we enter the E&Ps 2015 budget season. If prices dip under $80/barrel for a spell, expectations for another round of robust capex spending are likely to be dashed.
We don’t mean to paint this situation as grave. Oil prices can and have reversed direction quickly and dramatically in the past. Nat gas pricing hasn’t always been – well, ghastly. The fact we’re heading into the seasonally weak fourth quarter suggests rig counts will turn down sooner than later. Material cancellations or work delays are not expected at this early stage. Earlier in the month rumors of low double-digit 2015 E&P spending were circulating. Sustained low crude prices are sure to wreak havoc on optimistic forecasts. Based on current WTI levels in the low 80s, our expectations are for flat spending announcements heading into the new year. If WTI reverses its course, spending plans can always be amended.
To put this all in perspective the latest twist shouldn’t cast a pall on 2014, it simply reinforces the fact that OCTG is an extremely cyclical business and we must accept the good with the not so good. Perhaps taking stock of the year to date and treating ourselves to a reality check will help calm fears. As it stands, OCTG inventories are moving in the right direction, rig efficiencies have been escalating, months of supply is at a manageable level for the past quarter and OCTG consumption is climbing to record highs. 2014 might not go down in history as a “killer” year, but it won’t be dead in the water either!