Testing the OCTG Market’s ‘Metal’ in Early 2019

Anadarko November 2017 Cover

Photo Courtesy Anadarko Petroleum Corp.

Susan Murphy | The OCTG Situation Report

Susan Murphy Publisher + Editor-in-Chief

If it’s February it must be our “Annual State of the Industry Report.” But alas, that isn’t the ‘Situation’ this month as the shutdown got the better of anyone who relies on the government for stats. Thus, we’ve postponed our Annual Report until March when the December 2018 import/export data points will be made available, enabling us to provide a thorough examination of the trends that defined the OCTG landscape over the past three years. 

This month we’ll look at some current stats and try to make sense of the circumstances in which we find ourselves at present. Since crude oil pricing is the mother of all OCTG metrics we might as well start by acknowledging that it’s expected to impact a number of OCTG metrics at least for the first half of the year. The degree to which this will occur is all that’s in question. 

On the positive side of the ledger, according to the latest Dallas Federal Energy Survey, respondents believe a repeat of the last oil & gas industry downturn (2014) is unlikely this year so we can all breathe a collective sigh of relief. Executives from 161 oil & gas firms responded to the survey December 12 – 20 when oil prices were in the low 50s. The WTI crude price ended the week (2/22/19) at $57.26. Their report lent credence to what we’ve come to expect: as long as crude remains north of $50/bbl the “heavy hitters” (E&Ps drilling 10+ rigs in the highest returning plays) will more or less stay the course when it comes to budgets and drilling. Budgets from large independents will be flat until there’s greater clarity into commodity prices and rates of return while smaller operators with less capital and greater flexibility are likely to bob in an out of the oil patch as prices dictate. And although we can’t downplay the skittishness that hangs over any volatile oil market, 19 weeks after WTI dropped precipitously the rig count is only down -3%. That’s even as the number of private drillers historically sags in Q1 when they’re raising capital. This suggests a measure of resilience that some are interpreting as a shorter-lived correction. Just the same, with WTI hovering just above break-even prices for new wells (averaging $51 per the Dallas Fed Survey) caution will guide the market softer through 1H19 or until confidence in crude’s stability is restored. The silver lining in all of this may be that the Dallas Survey signaled, the potential for much slower growth in US crude production in 2019 relative to 2018.” Lower crude output, if met by the same from other countries, suggests higher prices for 2020 provided global demand for energy products remains intact. 

Meanwhile, OCTG pricing continued anemic in February. Buyers throughout the supply chain have their sights set on raw material costs for any signs of a better deal currently. And with inventory levels and months of supply in a good place, distributors are more likely to pounce if the price is right. The tepid OCTG pricing in February was driven by a steep decline in tubing prices. As long as DUC counts continue elevated, and especially if WTI dips below $50/bbl, tubing will take the hit. At this rate, there is little incentive for domestic OCTG producers to pick up the slack in tubing imports that is certain to grow throughout 2019. That could prove to be a real spoiler in 2H19 if crude prices tick higher and completion intensity increases. 

On the topic of imported OCTG, we predict imports will ease slightly in 2019. South Korean mills with the highest anti-dumping rates (to be finalized by the Department of Commerce in April), are the most likely to limit exports in 2019. Imports from Argentina and Brazil (under quota) will continue to be held in check although their shipments will not be subject to tariffs. With US substrate costs at more reasonable levels, domestic welded mills that are currently enjoying a little breathing room could see some import buyers turning in their favor, that is, if “capacity creep” (growing domestic capacity) doesn’t undercut recent improvements in margins.

While no one is expecting a sea change for 2019 most market participants are trying to find their sea legs. The jarring commodity price shakeup that took crude price whisperers by surprise last October set in motion what may end up being our “Altered State of the Industry Report” when we publish our Annual intel next year in February. Until then, watch this space for “all the news that’s fit to print.” 

Photo Courtesy Anadarko Petroleum Corp.

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 Crude Oil Prices, Department of Commerce, DUCs, E&P, E&P spending, Energy, ERW Pipe, Government Shutdown, Hot Rolled Coil, HRC, OCTG, OCTG Consumption, OCTG Consumption & Pricing, OCTG domestic shipments, OCTG Imports, OCTG mill, OCTG Mills, OCTG Pricing, OCTG Processors, OCTG Producers, OCTG Spot Prices, OCTG Trade Case, Oil & Gas Industry, Oil & Gas Pricing, Oil Country Tublular Goods, oil country tubular goods, Oil Patch, Oil Prices, Onshore, Pipe, Prime Pipe, Seamless Pipe, Section 232, Shale, Shale Plays, steel industry, Steel Tarrifs, Steel Trade Case, Supply Chain, Trade Case, Tubular Goods, upstream OCTG, WTI prices and tagged , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , . Bookmark the permalink.

2 Responses to Testing the OCTG Market’s ‘Metal’ in Early 2019

  1. Ryan Hunt says:

    Susan

    Thank you for publishing. Very thorough report!

    Ryan Hunt
    Founder & CEO
    W: RigCallOut.com
    O: 314.551.9950 x100

    Intuitive. Responsive. Visibility that brings about a Revolution.

    Sent from my iPhone

  2. Thank you for your kind words, Ryan. Much appreciated.

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