Survivor: Oil Patch. The Harsh Reality.

Photo Courtesy EP Energy

Photo Courtesy EP Energy

Susan Murphy | Publisher

Susan Murphy | Publisher

Welcome to a new season of “Survivor: Oil Patch.” The name of the game this episode is finding an advantage to the challenges ignited by the tumultuous oil price environment that blindsided even the most savvy oil patch veterans. Lest we all be banished to a permanent state of ‘Isle’ be damned, we best determine some manner of redemption.

As we were about to draw some notable parallels between the current cycle and the last (2008/2009), peak to trough, the bottom fell out of WTI and derailed that line of thinking along with hopes of any sort of recovery in OCTG sentiment for the back half of the year. We can’t help but remind readers of the painful path plotted by OCTG prices over the past six years, giving a good indication as to why OCTG prices haven’t seen greater reductions in 2015. Fact is, we haven’t recorded a composite average price/ton the likes of the one we published this month for exactly 11 years – back in August of 2004.

Unfortunately no amount of well-wishes can goose OCTG demand or prices this year. Simply put, OCTG prices are being battered by a host of forces. In better days, a successful HRC trade case outcome could lift prices for U.S. welded pipe producers. With demand in the dumps it is more likely that the expected rise in raw material costs will only eat away at increasingly meager margins. Similarly, the recent corrosion resistant and cold rolled trade cases are not expected to impact OCTG pricing. While OCTG imports have been all but cast away of recent and domestic shipments are decidedly depressed, there’s more than enough inventory to be pared down before prices can rally.

Adding fuel to the fire, Barclays recently noted there have never been two consecutive years of declining upstream spending in the 25-year history of their E&P survey, which is likely to change in 2016. Even if oil prices were to return to the $50/bbl range over the next several months, 2016 North American Capex would still be projected down more than 30%. A potential Federal Reserve interest rate hike in the coming quarters, the first increase in almost a decade, could also hamper access to capital for new funding.

The many twists and turns that have transpired since Thanksgiving 2014 have brought new meaning to “harsh reality” for the oil patch. The current climate offers little chance for immunity for the “tribe” that makes up the OCTG community. Painful as it is to report, these “rites of passage” (aka boom/bust cycles) are deeply rooted in the sector. Spoiler alert: this bust, too, shall pass.

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 CAPEX, Crude Oil Prices, E&P, E&P spending, Energy, OCTG, OCTG domestic shipments, OCTG Imports, OCTG Pricing, OCTG Producers, Oil & Gas Industry, Oil Country Tublular Goods, Oil Patch, Oil Prices, Shale, Shale Plays, Tubular Goods, U.S. CAPEX, upstream OCTG, WTI prices and tagged , , , , , , , , , , , , , . Bookmark the permalink.

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