The year 2020 has certainly been an interesting (aka challenging) one all around. With apologies to Laurel and Hardy, we managed to make it through Septober and Octember and here we are in No-wonder! So where do we go from this point? That’s what we set out to explore in our Annual Forecast of all things OCTG. Consider this your 2021 OCTGPS.
Since OCTG is beholden to E&P Capex we’ll use this as our jumping off point. Guidance for 2021 is limited and mixed at this early juncture. A number of forecasts for the new year suggest more of the same only to a far lesser degree since the US took the bulk of the hard knocks this year. Many forecast capital expenditures -<10% but there are contrarians who see that same 10% on the plus side. The latter’s optimism arises from the fact NAM E&P’s have spent below levels required to maintain production and thus need to raise Capex in order to keep production levels flattish in the new year.
Of course, these budgets are built on the oil/gas producers prognostications for commodity pricing and—stop us if you’ve heard this before—nat gas is staging a comeback for 2021. This time, however, there are more markers for a bullish gas forecast than we’ve seen in a long while. Current conjecture calls for nat gas prices to trade inversely with oil. That nat gas is less sensitive to lockdowns and the like bodes well for the commodity.The all-consuming concern for oil demand is the global pandemic. No matter how you slice it, the Coronavirus has plagued the oil markets and will continue to do so until it’s under control. That makes it the “X factor” for the coming year; an X-treme unknown onto which all 2021 forecasts are precariously perched and from which no one is immune.
The virus notwithstanding, the oil patch must go on so our November OCTG Situation Report reviews the most likely allocations for 2021 budgets. Considering that the OFS market has all but become a victim of its own success, less is once again more. With crude prices in ‘turm-oil,’ E&Ps have little choice but to focus on production maintenance programs; shifting from production growth to stay ahead of decline curves. For at least the first half of the year completions activities will garner a greater share of capital budgets than drilling activities. Look for “frack baby frack” to replace “drill baby drill” as the mantra for the new year. Also, look for more guidance on oil output when OPEC meets to set policy later this month. Outlooks for the rig count vary across the board, too. We discuss ours in this month’s Report.
The laws of supply and demand inform us that the highest probability for collecting price increases is when demand exceeds supply. This explains some of the price firming we’re seeing now. Raw material prices factor to a lesser degree unless all OCTG producers are experiencing the same pain and all collectively attempt to recover by advancing an increase. We provide our analysis and forecast for OCTG pricing in 2021 and the basis for it in this month’s intel.
And lastly, we turn our attention to the all-mighty OCTG consumption. You’ll find it all in this month’s OCTG Situation Report.
Lest you think you’ve been looking for good news in all the wrong places we leave you with this relevant reminder “out of the hottest fire comes the strongest steel.” May you take care, stay strong and be well this holiday season.
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Photo ExxonMobil Courtesy Shuli Hallak