Septober, Octember, Nowonder! The last three months have brought a dizzying array of uncertainty and speculation to the oil patch. A single news source will publish one article on the dire state of the crude oil market while the next suggests fears are overblown. We certainly don’t want to add fuel to the fire and are apt to believe as with most headlines, the truth is somewhere in the middle. This provides little consolation in the month that we prepare multiple forecasts for the coming year. We’re blaming Murphy’s Laws for our luck but we’re going to plunge in and settle on some tangible guidance for you.
Typically we commence this exercise by examining commodity pricing, the jumping off point for drilling activity and the basis from which E&P budgets are created. The recent upheaval triggered by the crude sell-off has most operators standing by for more information before casting their CAPEX lines. The looming question seems to be: “is $80 the new $100?” Until this is settled conclusively, our prediction is that spending will be based on our ‘crude’ estimate of WTI at $80 – $85/bbl and will tilt down, possibly 5 – 10%, in 2015. Mind you, total expenditures may be falling but the sky is certainly not: we’re still talking about billions of dollars here. In any case, the general rule going forward is “cash flow is king.”
As producers are prone to seek price concessions in the new year in order to maximize their budgets, the impact of the crude sell-off on OCTG will likely trickle down to pricing with regional divisions based on the economics of the specific plays. Frankly, aside from raw material cost recoveries, considering what we’re expecting in the way of new capacity for 2015, it may be a long while before we see another appreciable uptick in OCTG prices. A pie chart in this month’s Report breaks out the incremental tonnages expected above and beyond 2014 domestic shipments along with a number of forecasts for the coming year.
When we add OCTG imports to the anticipated domestic tonnages and factor consumption into this scenario along with the specter of declining crude prices, that’s when things get tricky. We can’t help but wonder who will pay the piper ultimately?
Bottom line: from all appearances the oil patch has hit a soft patch. No one knows how this will play out but we’re confident y’all know the drill. Nerves of steel might help but it’s best to remember it is rarely ‘oil’ or nothing in this industry.