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  • Susan Murphy

4Q19 OCTG Inventories: Survival of the Fittest

Updated: Aug 6, 2020

Welcome to the new year and a new decade. While the results of our exclusive 4Q19 OCTG Inventory Yard Survey can’t steel you against unforeseen events, we trust it will provide some ‘2020 foresight’ to prepare you for any situation that arises in the tubular market this year.

Gauging the fitness of the industry by measuring demand for OCTG throughout the entire supply chain across the lower 48 is the goal every quarter and what sets the OCTG Situation Report apart from all others. Our January 2020 Report offers a deep dive into all the metrics that matter in our most recent OCTG inventory yard survey as well as how the changes impact the OCTG market.

So, let’s crunch some numbers: our 4Q19 inventory survey proved that folks were resolved to shed some ‘pounds’ heading into the new year. Overall “prime” US upstream OCTG inventories were reduced by a healthy sum thinning the total inventory count significantly. This is the leanest volume of US inventory stockpiles we’ve seen in a few years.

We’re also pumped to announce that OCTG inventories in the “tri-state” (TX, OK, LA), where the bulk of activity we track takes place, were pared to a level we haven’t seen for almost a decade. This new low tips the scales in favor of a far better supply-demand balance when entering into a year where uncertainty rules the day.

Another quarter of aggressive pricing helped cut excess inventories throughout the quarter putting inventory in a better position to endure any challenges that 2020 may bring. It also didn’t hurt that domestic shipments for 4Q19 are projected to be the lowest since early 2018. Likewise, imported shipments are expected to be at their lowest point since late 2016.

With two back-to-back quarters of material destocking now behind us we’re observing a pronounced pattern that has emerged during the second half of the past two years. This conspicuous offloading of inventories appears to be the result of the intense squeeze put upon producers from Wall Street making for a 1H weighted market, where 2H “budget exhaustion” more or less creates the conditions for OCTG for the remainder of the year. It will be interesting to see how this development shifts oilfield dynamics moving forward.

Despite the weighty talk of industry belt-tightening and profit growth over production growth, there’s no good reason to throw in the towel. While CAPEX is trending down Y/Y operators are able to do more with less, thus supporting continued well activity. OPEC-Plus output cuts together with falling production in North America also favors improving market dynamics; and no one would be wrong to expect them—just not this year. So, while 2020 may feel more like an exercise in routine, we should remind our readers of the old adage: “no pain, no gain!”

Photo Courtesy Borusan Mannesmann Pipe U.S.

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