Marching to the Beat of a ‘Better’ Drummer
As we think back to this time one year ago we’re grateful to be Marching to the beat of a different drummer. In contrast to last year, when news of the pandemic dealt a blow to the oil patch that ultimately sent crude plunging into negative territory soon thereafter, we’re recalibrating our 2021 forecasts higher.
In addition to our updated rig count average and apparent consumption projection, we also presented our forecasts for domestic and imported OCTG shipments in this month’s market intel. Murphy’s Laws, something we know by heart, had it that we couldn’t have chosen a more inopportune time to publish the latter but it’s the first available month in the new year that made sense to do it. Moreover, it complemented our Annual State of the Industry Report published in February. With the confluence of OPEC’s surprising oil cut extension, imported cargo delays and raw material cost hikes, etcetera, the Yogi Berra quote, “prediction is very hard, especially about the future” seemed especially apropos but that never stopped us before.
When you pause to think on it, there are actually a number of encouraging signs for the tubulars market coming into view. Besides the recent OPEC decision—until further notice—and talk of selective rig adds by operators, there are longer term implications wrought by fierce US decline curves and rapid oil surplus depletions. There’s also the potential for a return to some normalcy with the ramp-up in vaccinations for Covid-19 and strong US economic data riding on that. And depending on which side of the desk you sit and what products you produce, pipe price increases and pared OCTG inventories could be a good thing.
However, it is the spiraling feedstock prices that were most challenging when it came to forecasting welded mill production for 2021. Seamless mills had an easier job of it, noting the opportunity for increasing market share this year—both from imported sources as well as domestic ERW producers. The import situation is decidedly nebulous at this juncture as estimates for import shipments ran the gamut from flat to far better. We created charts this month breaking out all OCTG shipments into seamless, welded, tubing and casing categories.
The 2021 industry reset, and post-crash oil patch behavior will determine the well-being of OCTG. Most oil market prognosticators anticipate a measured response to the tailwinds that are materializing. But there is little doubt that it will take a great deal of restraint to ignore the temptation to binge-drill as commodity prices climb higher; severely testing operators resolve. Private O/G firms will have an easier time navigating this situation than public companies that remain under tremendous scrutiny.
While we risked getting out over our skis, we yielded to some of the positive indicators and boosted our 2021 forecasts for the rig count and apparent consumption. No matter the outcome, the year will surely keep everyone on the edge of their seats. That being said, there’s one thing about which we can all be certain as stated by another baseball all-star Dan Quisenberry, “we’ve seen the future and it’s very much like the present, only longer.”
NOTE: Our monthly blog posts offer a slice of the content we publish in The OCTG Situation Report® every month. To subscribe and/or request a complimentary copy of our Report for review please visit: https://www.octgsituationreport.com/subscribe
Photo Courtesy Sooner Pipe, LLC