OCTG 2Q21: Taking a Bite Out of Upstream Inventories
It’s that time in the summer when we tackle yet another exclusive OCTG Quarterly Inventory Yard Survey. In so doing, we cast a wide net; culling inventory counts throughout the L48 tubular supply chain, including truck terminals, mills, processors, and inspection yards. The net results for the period ending June 30, 2021, shouldn’t catch anyone that’s been paying attention off-guard as the current supply situation continues to take a bite out of upstream inventories.
In 1Q21, prime finished outbound shipments from supply chain service providers were far greater in quantity than inbound shipments that were kept in check due to the measured uptick in domestic mill capacity and a finite supply of imported goods. In Q2 some of those materials have been replenished, but overall more inventories were shed than built further contributing to what can only be characterized as a “tight” market.
This brings us to the results of our 2Q21 OCTG Yard Survey, which revealed inventories are holding at their lowest volume since the first half of 2008. Inventories of OCTG in the “tri-state” (TX, OK, LA) region resulted in a total that harks back to the same period in 2008 as well. The drawdown continued outside the tri-state region with inventories holding at their lowest level since 2Q06. We detail the inventory changes reported in every product category throughout the tri-state in Q2 in our monthly market intel.
What we can’t help but notice are the parallels to 2008. This is not to imply that we see a repeat of that disruptive year anytime soon. In reviewing our own Report back in April of 2008, just as OCTG spot prices began a brief six-month surge that had prices surging $1,400/st, we explained what was underpinning the most erratic market since the 80s. Interestingly, among the reasons cited were the sharp draws in inventory that preceded the run-up in prices in tandem with steady demand and a global surge in raw materials. This confluence of dynamics made for a “tight, tight, tight” market as it was stated in our Report at the time. While one can’t deny the commonalties, if only for conversations sake, the differences are equally as stark. WTI averaged $133/BBL, Nat Gas averaged $11/MMBtu and the rig count was 1,932 in July 2008.
Typically, we tack on an annual “active” versus stalled and/or obsolete OCTG inventory survey in Q4 to help with dissecting L48 inventories but nothing is “typical” in the oil patch these days. After the unusual volumes reported in obsolete inventories, this update was helpful in delivering a sense of what has transpired since then.
There’s no question that the remainder of the year will have us watching with bated breath. For readers seeking to get a line on how the market might play out, be sure to revisit last month’s mid-year market blog where we floated some clues to our updated forecasts for 2H21.
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Photo Courtesy Tubular Synergy Group