Helter ‘Shelter’ in the Oil Patch with OCTG

The OCTG Situation Report May 2020 Photo Courtesy Southwestern Energy Company

Photo Courtesy Southwestern Energy Company

Susan Murphy | The OCTG Situation Report

Susan Murphy | Publisher + Editor-in-Chief

It’s May in the oil patch and we hope you’re doing well and staying well in this helter ‘shelter’ world in which we now find ourselves. “Helter-skelter,” as the phrase is known, seems to be an appropriate way to label the current state of upheaval in the oil & gas markets. Sadly, this is not a drill. It’s our reality these days so let’s discuss how we might navigate it.

This month in The OCTG Situation Report we focused on OCTG pricing. Our blog offers a slice of our editorial. 

Perhaps not surprising given the fluid and dramatic chain of events we’re witnessing, an interesting development in the OCTG market is emerging: a divergence in pricing based on the specific supply channel. “Supply” can be sourced from mills (new production) or can be drawn from inventory and it is here where we see a disconnect. Many domestic mills are electing to cut capacity before cutting replacement costs, forfeiting market share to an uncustomary ‘competitor’ in the form of inventory on the ground. Mounting inventories exert downward pressure on prices which result in greater discounts on surplus stocks; a ‘buy-product’ of distributors and traders liquidating inventories for cash. 

Meanwhile, the rumor mill’s been working overtime debating a possible spike in OCTG prices later this year. The rationale is driven by reduced levels of production in steel scrap combined with the retrenchment in domestic supply mentioned above plus a precipitous drop in imported materials anticipated for 2H20. To start with, predicting an upside in pricing is precarious at best until we arrive at a bottom in the rig count and at the moment even that’s wildly unpredictable. Will it trough at 250 or could it be less? Will it happen in June or might it be July? 

You’ve probably heard of the philosophical question, “if a tree falls in the forest and there’s nobody around to hear it, does it make a sound?” The same could be said of OCTG: “if a mill raises the price and there’s no one around to buy, does it really matter?” Ultimately the pricing conundrum can only be answered by the current and foreseeable future unknown: demand and what it looks like when it begins to return. Will it be robust or tepid? And where will the available CapEx be directed? The likely answers to these critical questions were discussed in detail this month and can be found in our May Report. 

Looking ahead in a year fraught with challenges doesn’t offer much in the way of excitement but let’s remember that many downturns have produced great innovations in oil and gas technologies. And perhaps, even more important, let’s not forget “tough times never last, but tough people do.” 

NOTE: Our monthly blog posts offer a slice of the content we publish in The OCTG Situation Report® every month. To subscribe and/or request a complimentary copy of our Report for review please visit: https://www.octgsituationreport.com/subscribe

Photo Courtesy Southwestern Energy Company

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.
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