OCTG in 2H20: “The Good, the Bad & the Ugly”
Updated: Aug 6, 2020
Every June we confer with colleagues from all walks of OCTG specifically to examine their outlook for the balance of the year: “the good, the bad and the ugly.” We’ve grown weary of the “un-” words: uncharted, unprecedented, uncertain and have promised not to use any expletives in our editorial. So, what’s left? This month we’re going to turn our attention to “what’s right” about the oil patch because, as we will share below, while we were bracing for the worst, we were met with far more optimism than most would expect. Even better there is some solid reasoning to suggest the positivity isn’t just wishful thinking.
One of the most interesting aspects of our annual conversations is comparing notes with the previous year or years. What we discovered this month is that the current sentiment across the board is actually better than a year ago. Perhaps it’s because people are digging in and more determined than ever to beat it, but it's an interesting contrast given the turmoil we’ve witnessed over the past three months. So, what does “better” look like? Is it data-driven or is it a pipe dream?
To briefly summarize a portion of our editorial, our view is we’re not out of the woods but we’re beginning to see the forest for the trees. Most of those with whom we spoke are very realistic in their outlook, expecting a slow grind up from the bottom with a measured response moving forward. It doesn’t hurt that perception often precedes reality and that might provide a bit of a lift, too.
Last month in our May Report we took a deep dive into OCTG spot pricing, so we’ll limit our discussion on that topic other than to say reviewing distributor prices this month was a bit like boarding the ‘disOrient’ Express. Talk about taking leave of one’s ‘consensus.’ We assume this disparity will continue to be the state of play until inventories are whittled down and a new normal is established.
We also examined the potential risks of a rally in activity in our intel this month. One question operators raised repeatedly during our discussions was whether the market would be ready to handle a concerted push to tap DUCs in Q4? What would be the response considering the sharp decline in domestic and imported tubing supply merged with deep cuts in employment at mills and processors? We address this matter along with mill capacity expectations for 2H20 in our June Report but will say most well-known processing facilities expect very little in the way of delays provided there isn’t too swift or steep an upsurge for their services.
World renowned management consultant and business visionary Peter Drucker said, “the best way to predict the future is to create it.” Judging from our calls this month we’d say the OCTG market got the memo and it’s: “damn the torpedoes, full speed ahead.”
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Photo Courtesy Hess Corporation