OCTG 2022: ‘Supply’ is the New Demand
Attention drill seekers! The stampede to Houston is underway this month as Houston took center stage for the concurrent 40th IHS CERAWeek conference and the world’s largest Livestock Show and Rodeo, “RodeoHouston.” The theme of the preeminent energy confab was, “Pace of Change,” something that spoke to both the volatile hydrocarbon market and erratic OCTG industry. Similarly, there’s a lot riding on RodeoHouston; a roundup of iron-willed cowgirls and cowboys doing their best to hang on in a turbulent environment.
Meanwhile back at the ranch, we’ve been riding herd on OCTG production in an attempt to see daylight on our annual US Supply Forecast for 2022. The objective of our investigation was to determine if this year’s pipe supply is going to move from a rodeo to an all-out calf scramble leaving some folks empty-handed. Our conclusion: ‘supply’ is the new demand for 2022. All this brings us to a far more somber issue, that of the unprovoked and tragic war on the sovereign nation of Ukraine. The unrest is rattling markets worldwide and its repercussions are so deep it even poses a threat, albeit small in the big picture, to a niche market supply forecast like ours.
There’s a lot to sort out here so let’s grab the bull by the horns and get started. If you’re a subscriber to our monthly market intel you’ll see in the two charts on page 2, we attempted to bring some order to the chaotic and perhaps quixotic supply picture for 2022. In defense of the pipe mills that forwarded their projections, none are immune to the trials and tribulations that have pervaded the market over the past three years. Just after 2022 forecasts had been tendered and the war in Ukraine was raging on—we watched as raw material prices notched higher, another potential spoiler for welded forecasts. That said, we presented our initial, more optimistic projections and welcomed any antidotes the OCTG gods might have at the ready.
Try as we might, we weren’t able to push our total supply forecast beyond that of 2019. While the Y/Y difference may sound substantial, with the 12-month crude price strip at $107—the need for pipe is real and the challenges to supply are staggering. Our March Report details our domestic and imported supply projections by various categories noting imported OCTG products are likely to come up short. In the wake of the recent OCTG trade case and the many competing geopolitical headwinds it’s hard to envision how imports can steer clear of these restraints.
And no matter the total of our supply projections, we still don’t know what to expect in the way of drilling/rig activity for 2022. Back in the good ole days, current commodity prices would have spurred drilling at a feverish pace. But these days many oil companies are beholden to investors, preferring to return profits through dividends/stock buybacks than expand drilling operations. They also want to avoid being saddled with losses if the bottom falls out of prices. This then becomes the X factor in the OCTG situation. And we know ‘why,’ but if—and this is a big if—E&Ps were to throw caution to the wind we can’t say if the reduced availability and higher costs of pipe, frac fleets, sand, labor, transportation etc. would ultimately hamper their plans.
And so, we come to the close of another Report as RodeoHouston winds down and CERAWeek concluded with a clarion call for US producers to loosen the reins to meet growing demand and offset the ban on Russian oil imports. A few short years ago this plea would have been a sweet CERAnade. Now we wonder will investors buck the trend and encourage E&Ps to answer the call and rise to the challenge?
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Photo Courtesy voestalpine Tubulars