It’s the beginning of a new year, the 29th for our Report, and this particular January feels like we’re starting from scratch; as in scratch our prior forecasts for 2015. Seems the new year started with a bang this past Thanksgiving Day when OPEC all but gave us ‘the bird,’ furthering the downward oil pricing spiral.
No need to rehash all the trash talk about oil prices here. We live in a world of 24/7 news and the media needs fuel to feed their frenzy. The “sky is falling” rhetoric can quickly run afoul. “Thoughts become things” and the oil patch and world doesn’t need more negative sentiment right now. By the same token we don’t want to offer false hope.
We can start by furnishing a little consolation from the results of our Quarterly OCTG Inventory Survey, which brought new meaning to the expression “close quarters.” Nothing to suggest despair there at least. Subscribers to our monthly market intelligence know that our exclusive inventory survey is designed to measure demand for OCTG giving the most accurate counts in the industry and best handle on the changes taking place in the upstream pipe market. For this, we survey the entire supply chain including truck terminal, mill, processor, and inspection yards throughout the lower 48. Data points from our survey are presented in-depth in the charts, tables and commentary found in this month’s Report.
Other clues to the outlook for oil country tubular goods can be found in U.S. E&P spending. For better or worse, CAPEX is highly correlated to commodity pricing for which a line in the sand has yet to be drawn. This makes estimating spending budgets for 2015 somewhat precarious. As operators tighten their belts, it seems “reality checks” will be the most common form of currency in the oil patch for the time being. When all is said and done, we foresee U.S. E&P spending cuts of 30 – 40% Y/Y. Canadian E&P spending is anticipated to be down similarly.
Drilling deeper, our rig count forecast for 2015 presumes a loss of some 650 rigs over the course of the year. We understand the OCTG consumption forecast that we propose in this month’s Report may feel like a punch in the gut coming off a year where consumption surged markedly. If consumption had registered in the single digits this past year the drop wouldn’t seem near as dramatic.
Based on our summation of all the current data points, the area of greatest concern heading into the new year is supply – more specifically over-supply – and to this point we can’t mince words. OCTG exporters simply haven’t got the memo: demand is tanking. January’s import license data suggests OCTG import counts are closing in on highs last seen in January of 2009. It doesn’t help that there’s a wave of domestic mills coming online in the next couple of years. This combination of factors will certainly short-circuit any recovery that was expected on the domestic front from the OCTG trade case. Worse, it could cause some corporate casualties in the OCTG community beyond job cuts.
Folks, we hate to be the bearers of bad news but the bears hold the cards at the moment. Most would agree the American shale revolution has been a great ride, but for now we recommend everyone rein in the supply chain. And it may be well to remember, in America your business isn’t guaranteed to be a success; all that’s guaranteed is the opportunity to be a success.