Oil Patch Confidential: OCTG's Glut-Wrenching Reality
By Susan Murphy
The month of February closed on a CERAmonious note as the 35th annual energy conference known as CERAweek convened in Houston in hopes of coming to terms with the challenges of energy in transition. The thunderous ‘Shalelujah' Chorus that led the event in recent years was muted but tuned into the adage that “sometimes you win sometimes you learn.” For those that can withstand the heat, those lessons, whilst painful, will ultimately lead to more knowledgeable, nimble and efficient operators.
Meanwhile back at the ranch the OCTG marketplace sputters along clinging to whatever lifeline might be tossed out from E&Ps who are chomping at the bit, eager to return to the “glory days.” Operators are standing by but spring banking redetermination season is upon us and no one knows exactly what’s in store. Cowen and Company’s latest revision to their early capex forecast of a 24% decline for the year to an ~44% reduction doesn’t offer much in the way of consolation or salvation. However, the consensus view is that a spending rebound is anticipated in 2017. It can’t come soon enough.
OCTG pricing trailed down again, dropping 3% this month, even as U.S. hot-rolled coil prices have rallied suggesting some light at the end of the tunnel that could help OCTG pricing find a bottom by mid-summer. That is if the advancing import situation witnessed in January and February doesn’t upend the progress that’s been made in shedding OCTG inventories. Even with the healthy inventory destocking over the past three quarters, there is still a lot of OCTG to work through. Rising levels of imported pipe at a time of bloated inventories can only be described as a punch in the glut.
All this is playing out in an election year unlike any we’ve witnessed before. We’d end our editorial with a political joke if we thought it would lift the mood. The problem with political jokes is that they often get elected(!) Entertaining as the process has been there’s a lot at stake. So for the time being we think it’s best to focus our “energy” on what’s best for our country and hope it trickles down to the oil patch.
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