As we close the chapter on another exclusive quarterly inventory survey, we’re grateful to the hundreds of OCTG yards throughout the supply chain that enable us to get the inside story on inventory volumes across the lower 48. We’ll preface this by saying last quarter’s reveal—exposing the first build in inventories since March of 2015—was a bit of a cliffhanger. Not surprisingly inventories and the suspense continued to build in Q2. As OCTG inventory is a leading barometer of oil patch health, what follows is our read on the situation.
Setting the tone for the action-packed second quarter, “prime” U.S. OCTG inventories escalated again for the period ending 6/30/17. The bulk of the increases were reported in the mill/processor category and West Texas/Permian region of the “Tri-state” (TX, OK, LA) area. OCTG stockpiles outside the tri-state region also advanced in Q2. The build recorded in the outer states Q/Q was attributed mostly to increased levels of activity in the New Mexico/Delaware Basin and Colorado/DJ Basin.
Robust production throughout the past quarter gave rise to increases throughout every product segment except one in the tri-state region. Our separate survey of select OCTG distributors registered inventory appreciations as well, an expected outcome considering demand levels. Further detail along with an analysis of “active” versus stalled and/or obsolete OCTG inventory is presented in this month’s OCTG Situation Report.
While raw inventory levels are mounting to support higher sales volumes and hedge against potentially rising costs, months of supply occupies a relatively safe place. There’s nothing inherently wrong with higher levels of inventory provided demand holds steady. That, of course, remains the $64,000 question.
There’s a lot of hesitation in the market with the imminent 232 ruling hanging overhead. OCTG is being quoted subject to the results of the investigation. Oil price uncertainty, OFS cost increases, budget fatigue and the expiration of hedges compound the uneasiness.
If only interpreting inventory results was as simple as reading the Texas Tea leaves! In reality, it’s a lot more complicated but the value is critical insight into the cycles of the OCTG supply chain. Fortunately, there weren’t many surprises this past quarter. While this does not guarantee a happy ending to the year at least it doesn’t conclude the growth narrative that commenced in the second half of 2016.
Photo Courtesy SeAH Steel America