Will ‘Chill, Baby, Chill’ be the Mantra for OCTG in 2019?

XTO Energy - Delaware Basin

Photo Courtesy XTO Energy

Susan Murphy | The OCTG Situation Report

Susan Murphy | Publisher + Editor-in-Chief

As we make our way through the dog days of August one begins to wonder if the “drill, baby, drill” mantra from 2008 will evolve into “chill, baby, chill” for 2019? OFS brass are forecasting drilling activity for the balance of the year will be ‘chillin,’ while softening OCTG prices are sending a chill down the spines of suppliers. Just looking at the many down arrows on our cover this month would lead many to believe that summer has given way to fall. So, is it all downhill from here? Let’s discuss. 

There’s certainly a lot to unpack when it comes to predicting how 2019 will ultimately play out. But with four months left in the year and news of a yield curve inversion warning of a potential recession within 8 to 24 months we can pretty much rule out an unexpected fortuitous event that might turn things around. Even the more recent and positive trajectory of crude prices; a combination of geopolitical events (Iran) and OPEC’s decision to extend production cuts through March 2020, don’t seem to be able to shake the stranglehold that Wall Street is exerting on E&Ps. This is presenting a conundrum for many who are at a loss to figure out how to goose demand and prices for all things OCTG.

On the latter, the OCTG marketplace continues to be mostly toxic. An all-out price war is taking place and while this may sound good for buyers we must issue a caveat emptor as we’re seeing quotes (many “unsolicited”) that seem too good to be true. Broadly speaking, most parties recognize “loss leader” prices are unsustainable in the long run. This brings us to the fact that Q4 program negotiations are currently underway at a time when US HRC pricing has come off the bottom. After three consecutive HRC pricing hikes steel producers are reporting a moderate level of stickiness and a slight recovery in HRC prices is forecast into the year-end. And while the Section 232 tariffs and quotas haven’t been a boon for OCTG, traders say tariffed HRC imports are having difficulty competing with domestics. Scrap prices have also risen to the occasion recently and are expected to remain stable throughout the balance of 2019. 

So, how do suppliers square higher raw material costs with existing market conditions? With Wall Street rewarding E&P profitability over production, rig counts slowing and the now cliche expression “budget exhaustion” rampant among E&Ps when discussing Capex, the odds of any OCTG price increase taking hold this year are doubtful. Unless, of course, there’s a significant reduction in inventories that would tamp down supplies. Thus, as long as OCTG stocks outstrip need, the laws of supply & demand will prevail. 

While there’s a lot of uneasiness in the market and numerous possibilities for it, we can all agree on one thing and that is “knowledge is power.” On that note, we’ll leave it to pop-culture icon and baseball great Yogi Berra to close our Report and offer some of his ‘wisdom’ on how to navigate uncertain times: You’ve got to be very careful if you don’t know where you’re going, because you might not get there.”

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 XTO 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, Crude Oil Prices, Department of Commerce, E&P, E&P spending, Energy, ERW Pipe, Horizontal Drilling, Hot Rolled Coil, HRC, Inventory, OCTG, OCTG 2019 Forecast, OCTG Imports, OCTG inventories, OCTG mill, OCTG Mills, OCTG Pricing, OCTG Processors, OCTG Producers, OCTG Spot Prices, Oil & Gas Industry, Oil & Gas Pricing, Oil Country Tublular Goods, Oil Patch, Oil Services & Equipment, Onshore, Permian Basin, Prime Pipe, Seamless Pipe, Section 232, steel industry, Steel Tarrifs, Supply Chain, Tubular Goods and tagged , , , , , , , , , . Bookmark the permalink.

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