After four rather tumultuous years can it be that the oil patch is preparing for a collective exhalation in 2024? When analyzing every leading indicator currently available our overarching theme is, “everything in moderation,” which is to say we’re not anticipating any wild swings. In other words, flat is the new ‘year.’ And so begins the “2024 OCTGPS”: our exclusive roadmap to navigating the year in OCTG.
Barreling ahead towards 2024, one doesn’t need a crystal ball to see that the appetite for upstream O&G merger and acquisition activity will continue to increase. Fueled by the battle for quality shale acreage and market share, the biggest of the oil majors are gobbling up some key independent US E&Ps. The news of the recent megadeals has other ‘single and ready-to-mingle’ operators wondering if they might be viewed as potential ‘domestic partners.’ Historically, the impact of consolidation translates into diminishing seller leverage, where 1 + 1 equals less than 2. This makes forecasting OCTG metrics for the coming year somewhat tricky if 2024 is to ‘gusher' in a new era of takeovers. And it’s not all about M&A; the lack of new startups in their wake adds another layer of murkiness. We did our best to wade through these X-factors in our November Report.
Combining increasing M&A activity with the fact the “drill, baby, drill” mantra from days of yore has evolved into “chill, baby, chill,” OCTG suppliers couldn’t be faulted for feeling a chill run down their spines. Their saving grace may come down to a growing sense that the anticipated challenges feel more familiar and manageable than those that came before.
We also must examine commodity pricing when considering OCTG consumption for the new year. Baked into our forecast is the continued emphasis on the now culturally ingrained “free cash flow,” where there remains a degree of disconnect between commodity price benchmarks and drilling activity. Our November Report examines every indicator and offers up forecasts for all things OCTG.
The $64,000 question always follows: how will this prognosis trickle down to OCTG pricing? Determining OCTG pricing Y/Y requires an analysis of both domestic and imported shipments, as well as inventory levels, all of which we examine in depth in order to arrive at a pricing forecast for 2024.
To wrap, the OCTG business is likely to see its first contraction in consumption since 2020, and with the pie shrinking, everyone will be reaching for someone else’s slice. Although that will leave some feeling hungry for business, the survivors will be stronger for the battle and better positioned as conditions improve. The takeaway: while the longer term (2H24 into 2025) prognosis suggests the OCTG market will be “cooking with gas,” the outlook for 2024 is hardly a recipe for disaster. And for that we can all give thanks.
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Photo Courtesy Devon Energy Corporation