The favorable signals the O&G market is sending has us running with the ‘bulls’ this month. First up is the ‘new down’: the healthy drop in inventory stockpiles as determined by the results of our exclusive 1Q21 OCTG Inventory Yard Survey. While subscribers know this isn’t our first rodeo, we should remind everyone that we are well into our 35th year of hosting our exclusive quarterly survey created to measure demand for OCTG throughout the L48. Our survey encompasses the entire supply chain (truck terminal, mill, processor, and inspection yards) in order to deliver accurate and actionable insights, equipping readers with the tools to better navigate the course ahead. Here’s our roundup for Q1.
It’s not an exaggeration to say that inventory yard participants struck while the iron was hot throughout the first quarter of the year. Prime, finished OCTG was moved out as quickly as it came in with some yards reporting next to no OCTG materials on the ground as of March 31. Consistent with these findings, our survey revealed inventories were pared materially from the supply chain Q/Q bringing L48 stockpiles to their lowest volume since the first half of 2008. Further analysis shows inventory draws were reported in every product category throughout the tri-state (TX, LA, OK) again in Q1. Complete results of our 1Q21 inventory survey are quantified and analyzed in this month’s market intel.
The steep decline in upstream tubular inventories this quarter boils down to the supply-driven market fundamentals. Mills, welded in particular, have no incentive to buy spare raw materials or build inventories in a high-priced HRC environment. Distributors, wary of the status quo, likewise, aren’t willing to stick their necks out and assume greater inventory positions. This has buyers, negotiating a seller’s market for new production, taking what they can find on the ground below replacement cost—eating into both active and stalled inventories.
It’s apparent that 2021 holds promise for the tubular market, but the kicker is not all participants are positioned to partake. There are the welded mills who are none too happy to sit out an opportunity and some operators who, despite the old industry adage: “give an oilman a dollar and he’ll drill a well,” will do everything in their power to ward off the temptation and keep their pledge to the “growth plus dividends” paradigm. Both of these factors will impact the year in ways that only time will tell. Meanwhile, efforts to replenish and build inventories in anticipation of emerging demand have been hindered by the need to solely push product to the marketplace. In the current business climate pipe barely touches the ground as confirmed by the outcome of our first quarter survey.
While inventory levels are historically low at present, lower levels of activity/consumption have kept months of supply elevated. With the results of our 1Q21 inventory survey quantified, inventories are coming into balance with supply. That being said, this infers that inventories would be best reined in given subdued levels of rig activity. Perhaps the silver lining in high raw material costs (if it can be said) will help prevent over-saturating the market with excess product and depressing OCTG prices?
As we come to the close of another month in the oil patch given all that’s transpired over the last year, the best strategy forward may be to adopt a little cowboy logic, “We mount, we ride and never fear a fall. Call it the cowboy in us all.”
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Photo Courtesy PTC Liberty Tubulars