The OCTG Situation Report Inc. | Houston | Texas | USA | Tel: 281.826.1141 | www.octgsituationreport.com

 

Copyright © 1986 - 2020 The OCTG Situation Report Inc. All rights reserved. | The OCTG Situation Report® is a Federally Registered Trademark Owned by The OCTG Situation Report Inc.

  • Facebook Social Icon
  • Twitter Social Icon
  • LinkedIn Social Icon
  • Susan Murphy

Santa vs Scrooge: 2017 OCTG Forecasts


As we prepared to weigh in on our 2017 OCTG forecasts we couldn’t help but look back over the past two years with a mix of shock and awe. It was Thanksgiving Day 2014 when OPEC all but gave us ‘the bird,’ and the oil patch has struggled to recoup ever since. Since then we’ve gone from a time when it was hard to imagine pumping oil for much less than $60/bbl to reluctantly accepting $50/bbl as the new normal. And while the present year has served up more than enough apprehension, we would all do well to remain calm and bright in keeping with the coming holiday season. Barring any economic black swans, we can begin by crossing off “feast or famine” from the list of possible scenarios in 2017. That said, in order to set some baseline assumptions and tender some pertinent guidance we’re forced to address the elephants in the oil patch: fickle commodity pricing and OPEC’s lack of solidarity for starters – both tantamount to a lump of coal in the stocking. Early consensus views suggest WTI pricing will swing between $45 – $55/bbl in 2017, making us pine for the “good ‘oil’ days.” NatGas is expected to average >$3.25. When it comes to E&P budgets it is generally accepted “the more the merrier.” While 2017 spending may not be a coup de grâce, no one should look a gift horse in the mouth either. As noted by oilfield service analyst firm InfillThinking.com, capex trends for majors versus independents are set to diverge in 2017 – except in shale where expectations for double-digit spending increases are high. Stock market investors are also betting on an oil recovery with $28B in U.S. driller stock sales so far this year. Firms that have released preliminary North American E&P spending updates (Evercore & Barclays among them) are currently predicting a capex spending rebound between 17 – 25% for 2017. We don’t mean to dash spirits here but we need to remind our readers that OCTG typically runs <10% of total E&P spends. And while none of this is written in ‘shale,’ the anticipated boost in capex with upstream allocations predominately directed toward onshore projects should goose the rig count in the coming year. We’re projecting the U.S. rig count will average ~640, roughly 30% over 2016. This in turn will nudge OCTG consumption, for which we’re forecasting low double-digit growth Y/Y. Might even give rise to a tiny bit of cheer from the supply side? In the grand scheme of things, however, this forecast is pretty chilling considering we haven’t seen levels like this since the early 2000s. No matter how you slice and dice it, OCTG consumption will continue its slow go until a greater share of capex is devoted to drilling activities and drilling campaigns are reset. Nonetheless, we’re cautiously optimistic about the green shoots we’re witnessing. First is the potential for the new administration to institute policies that will favor domestic steel demand. While the push toward high-grading doesn’t always promise more wells per rig it does have the potential to produce an increase in longer horizontal laterals branded “super laterals.” That will most certainly fuel consumption tonnages but we still have a way to go. In order to see this reality materialize, oil prices will need to stabilize at or above $60/bbl. One possible caveat: this development could pose another challenge for welded mills as the super laterals often require OCTG like P110 or T-95/P110S and seamless pipe with semi-premium or premium connections. Turning to OCTG pricing for the new year, we see the path of least resistance for OCTG to strengthen near-term. Domestic scrap and hot rolled coil (HRC) prices have rebounded and both are heading higher. This particular round of raw material increases has paved the way for an incremental uptick in OCTG pricing in the months to come. No surprise, as we were writing our editorial this month we began receiving mill price increase announcements intended to offset the rise in raw material costs. We anticipate that OCTG prices will firm moderately in the new year. Be that as it may, even in the face of mill price increases and the potential for a rally, speculative imports could easily thwart this fragile recovery. As we prepare to ring in the holiday season we offer our sincere well wishes to you and yours. And that folks, is a wrap. Photo Noble Energy Inc.Courtesy ©Jim Blecha: oilandgasphotographers.com

#OilPatch #OilCountryTubularGoods #OCTG2017Forcast #EPBudgets #EvercoreISI #Barclays #OCTGMills #OPEC #OCTGInventory #2017EPSpending #OliGasIndustry #OCTGPricing #OCTGConsumption