The OCTG Inventory Survey 2Q15: A Can of Worms or A Keeper? 

Photo Courtesy Centric Pipe

Photo Courtesy Centric Pipe

Susan Murphy | Publisher

Susan Murphy | Publisher

Mid-summer has arrived, time to tackle another quarterly inventory survey. As y’all know, every three months we launch our “fishing expedition” designed to measure demand for upstream OCTG. This involves culling inventory counts by surveying truck terminals, mills, processors and inspection yards throughout the entire U.S. supply chain. The net results for the period ending June 30, 2015 might help buoy some spirits.

The combination of slack demand with the surge in imports seen through May could have easily spawned increased stockpiles of OCTG. Instead, we’re pleased to report that inventories of “prime” U.S. OCTG decreased substantially in the past 90 days. This is nothing short of impressive all things considered and would have been all but impossible had it not been for the deep cuts in OCTG shipments made by domestic mills this year. The last time we witnessed a Q/Q decline in tons close to this extent was back in December of 2009. Our separate survey of select distributors in the U.S. registered a remarkable drawdown Q/Q as well; confirmation that distributors are keeping a watchful eye on inventory. Further detail is presented in the charts, tables and commentary in our complete July Report.

If crude pricing could stabilize in the mid 50s to 60s for the balance of the year inventories could be whittled down a couple hundred thousand tons by the end of Q4 provided imports continue the material downtrend that took hold in May. While this would improve oil patch sentiment, a greater bite needs to be taken out of inventory in order to see months of supply recede from the high number of months we’ve posted for May. For this we need to shore up demand. Easier said then done especially as oil prices have tumbled again of recent, which brings us to midyear E&P spending.

Given current WTI prices and the low prospect of a sustained rebound this year, any spending rally will be muted. According to Cowen and Company this is complicated by the fact that E&Ps have spent two-thirds of their total 2015 budgets in the first half of the year. Therefore additional capex will require upward revisions to budgets that can only come through higher commodity prices or more financing. With many hedging contracts set to expire in October cash flow will be further strained.

Granted, most parties are in the same boat and there’s little consolation in the stats on OCTG at the moment. Swimming upstream is a lot of work but for those who can stay afloat history tells us the rewards will equal the effort.

About The OCTG Situation Report

Susan Murphy is the Publisher + Editor in Chief of The OCTG Situation Report, a leading authority focused on the North American Oil Country Tubular Goods market. Susan has worked alongside the founder of The OCTG Situation Report, Duane Murphy (and yes, there is a family connection!) for the past decade assisting in various aspects of producing the monthly publication and special projects including market research and development. It had long been suspected that Susan carried the 'OCTGene,' a fact that was confirmed when she took the reins in 2012. A native of Michigan and now practicing cowgirl, Susan employs her education from both the University of Michigan and Michigan State University bringing her expertise in the areas of research, marketing, branding and creative and technical writing to The Report. She has also enjoyed a successful business career as a lauded entrepreneur, running her own brand/marketing and advertising/design firms.
This entry was posted in 2015 E&P Budgets, CAPEX, Crude Oil Prices, E&P spending, Inventory, OCTG, OCTG domestic shipments, OCTG Imports, OCTG inventories, oil country tubular goods, Oilpatch, upstream OCTG, WTI prices and tagged , , , , , , , , , , , . Bookmark the permalink.

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