When it comes to diagnosing the health of the oil patch there’s no greater panacea than robust drilling activity, but a significant drop in OCTG inventories is always a shot in the arm for the supply chain. Thus, the results of our exclusive Quarterly Inventory Yard Survey can be viewed as a welcome relief. In 3Q19 (period ending 9/30/19) “prime” US upstream OCTG inventories in the lower 48 contracted significantly. Details can be found in this month’s OCTG Situation Report.
Material reductions were recorded in all but one category throughout the tri-state (TX, OK, LA). In the closely monitored tubing category a fairly impressive decline was logged this past quarter. Our separate survey of “select” distributors also confirmed the general eagerness to unload pipe inventories with a healthy decrease Q/Q.
A combination of events played into the drawdown of inventories in Q3 facilitated by a slide in OCTG shipments over the third quarter of 2019. Not surprisingly, curtailed inbound activity versus outbound shipments was reported by many processors. Aggressive pricing, furthered by ‘steal’ market prices on raw materials, also helped move some excess inventories in Q3. Efforts across the board to reduce inventories, anticipated for the fourth quarter as well, will trickle down to improved consumption stats for 2019. This could play into better prices for tubular goods in 2020—depending, of course, on the trajectory of rigs in the new year.
While the news on OCTG inventories was just what the doctor ordered, a turn for the worse for OCTG pricing this month is a bitter pill to swallow for the supply side. The skid M/M eroded prices to an average dollar per ton we haven’t seen in over a year. Judging from the erratic pricing inputs we received this month and the complete lack of consensus on almost every line item, it’s painfully clear that even distributors aren’t sure “what condition their condition is in” just yet. The steep rate of decline observed feels like a race to the bottom with no clear “bottom” in sight.
There is the likelihood of a silver lining for the ailing supply chain and that is that continued sloughing of OCTG (as well as crude oil) inventories expected in Q4 will bring about a degree of stability to start the new year that the market hasn’t witnessed for a while. While our vision of 2020 may not yet be “the picture of health,” at the very least this news should have most feeling a bit better.
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Photo Courtesy Hunting Energy
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