OCTG 2H19: Rolling with the Punches

The OCTG Situation Report June 2019 Photo Courtesy Surge Energy

Photo Courtesy Surge Energy

Susan Murphy | The OCTG Situation Report

Susan Murphy | Publisher + Editor-in-Chief

Each year in June we take the temperature of the oil patch, speaking with people from every walk of the supply chain to get a sense of the market from their perspective. This exercise inevitably yields valuable and colorful commentary on the present state of affairs. Last year could have been summed up in “232” words as discussions were almost entirely variables on the theme of the investigation. In reviewing the results of this year’s midyear market calls, one phrase best captures the sentiment for OCTG in 2H19: “rolling with the punches.”  

A sense of OCTG overcapacity is permeating the patch at this juncture, which is giving pause to many participants. We covered some of the more recent events leading to this view in our May Report. Coupled with the past week’s crude price inflection that sent the price/bbl into bear market territory, this scenario gives rise to increasing uncertainty moving into the back half of the year. No surprise when considering budgets were set at $50 – $55/bbl. It isn’t so much that demand is waning, it’s more that supply is omnipresent. As one party put it, “the operator story has remained mostly static since Capex budgets were announced earlier this year”; it’s the supply side that’s been caught flat-footed after assuming that the buoyant oil prices through most of 1H19 would prompt budget increases around this time. In past year’s operator commitments to discipline have been mostly met with a nod and a wink. Tighter grips on operator spends translate to an unlimited amount of supply chasing a limited amount of demand. Even with the possibility that the upcoming OPEC meeting will result in an extension of the production-cut agreement, it is unlikely such an event will budge the strict budgets of most operators or entice Wall Street to extend more credit. 

Speaking of Wall Street, the word “credit” was used deliberately and repeatedly and in a way we haven’t heard since the late 2000s. Indeed, folks from the supply side corroborated a heightened awareness of the risks associated with overextending credit during such a state of flux. Another phrase that punctuated many conversations was, “dog eat dog.” Fierce competition for business has become ‘trolling’ for dollars, making it difficult for the market to predict a bottom. Most were in agreement that prices will tilt down for the remaining months of 2019 although a few remained optimistic thinking things might turn for the better in Q4. We discuss this in greater depth in our June Report.

Intel from investment banking firm Cowen says that E&Ps spent 28% of their ’19 budgets in Q1 and many others anticipate a similar situation to 2018 when “budget exhaustion” was the operative buzzword into the year-end. Remarkably, even with all the exhaust-talk late last year the rig count really didn’t suffer and it’s possible we won’t see a tremendous contraction at the end of this year although available funding will, in many cases, be funneled to completion efforts and remain steady for the “majors.” Private E&Ps remain the “wild card.”

American poet Robert Frost was quoted saying, “the best way out is always through.” While encouraging signs for the short term were scarce throughout our confab, the consensus seems to be on “consolidation” as the answer to many of the challenges the industry faces. Consolidation in supply and consolidation in operators—circumstances that appear to be taking shape around us—now offer possibilities for a brighter vision for the future as we approach ’20/20.’

NOTE: Our monthly blog posts offer a slice of the content we publish in The OCTG Situation Report every month. For a complimentary copy of our intel please visit: https://www.octgsituationreport.com/subscribe

Photo Courtesy Surge Energy

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 2019 E&P Budgets, CAPEX, Cowen & Company, Crude Oil Prices, Department of Commerce, E&P, E&P spending, Energy, ERW Pipe, Inventory, OCTG, OCTG 2019 Forecast, OCTG 2H19, OCTG CAPEX, OCTG Consumption, OCTG Consumption & Pricing, OCTG domestic shipments, OCTG Exports, OCTG Imports, OCTG inventories, OCTG Inventory Survey, 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 Patch, Oil Services & Equipment, Onshore, Permian Basin, Prime Pipe, Q2, Section 232, steel industry, Steel Tarrifs, Steel Trade Case, Supply Chain, Tubular Goods, upstream OCTG and tagged , , , , , , , , , , , , , , , , , , , , , , , . Bookmark the permalink.

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