Weather news has taken the US by storm for the past couple weeks starting with Hurricane Harvey that hit home for so many in the oil patch. While the plight of the people in its path was the first concern, many in the OFS supply chain wondered how the storm might trickle down to tubular goods. After all, the fate of OCTG this year has been balanced on a fragile ecosystem making another potential threat especially distressing. The two charts below lend further credence to this point; revealing the growing OCTG trade deficit as imports gain a greater foothold on our shores again this year. More discussion about the import situation can be found on page 7 of this month’s Report.
We’re relieved to report, all things considered, the hurricane posed minimal headwinds to OCTG supply and demand. Workforce and logistics bore the brunt of the storm. Many employees and trucking companies were forced to find workarounds for closed and impassable roads. Relief efforts are claiming truck capacity that would otherwise be dedicated to commercial shippers and inbound rates to Houston are rising. Trucking services are apt to remain disrupted for several months and personnel are more susceptible to poaching from other industries. As rates continue to spiral, these added costs are likely to be passed through where possible. Rates will eventually settle but aren’t inclined to fall to previous levels. The two leading US railroads, Union Pacific and BNSF Railway, along with regional Kansas City Southern (KCS) immediately suspended operations in the areas affected by the storm. Most have resumed service but representatives report maintenance work continues in some locations, which could slow transit times for some trains. The outcome is not expected to burden tubular goods.
There were some yards that were underwater following the storm. Distributors using those yards had to survey their inventory to validate prime status. Pipe that was exposed but salvageable is being power-washed; threads are being inspected, cleaned and possibly cut and rethreaded. Imports of OCTG took a bit of a hit as vessels rode the storm out in the Gulf waiting clearance. Some of the docks that handle OCTG are currently impacted by the channel obstruction. Normal levels of Port activity are anticipated to be restored in about a week according to Houston Port authorities. This poses minimal hardship since there is plenty of imported material on the ground to cover the bulk of immediate needs and supply has caught up with demand for the most part domestically. A few mills dealt with water issues but most have returned to business as usual. Thus, as far as pipe is concerned, the event is mostly “water under the bridge.” Sadly that fact doesn’t lessen the trauma for the many who were personally affected.
Initial concerns to the energy industry at large revolved around how oil prices would be influenced. The bottleneck caused by a stream of crude that had to be kept in storage tanks during the closure of more than a dozen major refineries (impacting nearly 3.3 mbpd of refining capacity) along the Gulf Coast has been a primary consideration. The bigger issue, however, has to do with US demand due to the after effects of both Harvey and Irma. Until this all plays out, oil prices are expected to remain choppy. Operators will be organizing their plans for 2018 capex in the coming months and will be watching this barometer closely.
As Houston works to rebuild we wish all of our colleagues in the oil patch blue skies and silver linings in the days to come.
ExxonMobil Photo Courtesy
Shuli Hallak Photography www.shulihallak.com