The crude awakening continues for the second month of the new year, bringing cold comfort for the deep freeze that’s taken over the oil patch. February is the month of our annual state of the ‘industry’ address: a time when we review the prior year in OCTG with the thought of gleaning some idea of what’s ahead. Unfortunately, it doesn’t appear that recent history will repeat itself, at least not in 2015. The gains made in OCTG last year have been mostly trampled and we’ve only just begun.
Most of you are aware that industry stats on OCTG shipments, imports and exports lag behind our Report by two months, thus we’re now able to close the books on 2014 and zero in on the trends that defined the OCTG landscape over the past three years. The OCTG year-end stats table on page 6 of this month’s Report might lift the gloom for a moment as we hark back to more pleasant times. But scratch beneath the surface and you’ll see that OCTG hasn’t received much respect of late. In fact, despite the importance of OCTG in drilling activity and the billions of dollars that domestic manufacturers have poured into insuring adequate supply and quality materials, its recent pricing trajectory suggests it’s become something akin to the Rodney Dangerfield of the oil patch. Here’s a little ‘crude’ for thought: consider for a moment that WTI oil prices realized gains of approximately 20% over the past four-year growth cycle (2011 – 2014). That compares with a loss of 2% for the OCTG average price/ton in the same period. Unrelenting import pressures and copious supply have all but kept domestic OCTG from the party, a trend that continued this month as distributor market prices tumbled. The last time we saw prices in this month’s range was May of 2014 and before that February of 2008.
One can never truly be prepared for a year like the one we’re facing but our intel suggests inventories have been well managed going into 2015. This will prove helpful when seen from the rearview mirror. Q4 U.S. OCTG shipment stats suggest a different story, showing increases in anticipation of continued vigorous demand. Sadly, although domestic mills are hastily scaling 1Q15 production back, the onslaught of imports arriving in January and February are being felt at the inventory level. Needless to say, rising inventories are not a welcome site in this challenging oil price environment and exporting countries would be wise to take heed of the perfect storm that’s brewing on our shores.
Meanwhile back at the ranch, permitting counts are falling precipitously along with rig counts. The “help wanted” signs that dotted the Texas landscape are now in the hands of the shale-shocked folks who find themselves without work and wondering what’s next. That said, our view from the “Situation Room” has been revised from last month. We’re now forecasting a lower average rig count and OCTG consumption for the year.
Far be it from us to want to be the ‘bears’ of bad news. We can only hope that February’s frustrations won’t become part of March’s madness.