September has arrived, time to turn the page on another summer and welcome the class of OCTG-U back into session. Unless you were playing hooky last month you likely read our syllabus on this unpredictable market YTD (second paragraph of August blog), so we won’t review it here. Suffice to say, with energy futures above average it promises to be an interesting trimester as we barrel ahead toward 2022.
Market sentiment is encouraging but cautiously so. Rarely have we witnessed a time in our past that there wasn’t a profusion of pipe on hand—from both domestic and imported sources—at a time when well costs were at all-time lows (as noted recently in numerous E&P investor presentations), efficiency gains were through the roof and CAPEX spends were increasing. While capacity is available here and abroad, the appetite for forking over the cash needed to cover higher costs simply is not. This isn’t limited to end-users alone. The same can be said for mills with regard to feedstock and distributors/traders buying supplies for customers. In the September OCTG Situation Report we discuss our timeline on the volatile pricing issues and our projections for 1Q22.
All things considered, most oil & gas executives responding to the Q2 Energy Survey by the Dallas Fed, agreed that bellwethers for the balance of the year are improving “notably.” Their business activity index, in fact, registered the highest reading in the surveys' five-year history. Coupled with drilled but uncompleted wells now at their lowest levels since 2013 it may be time for producers to revive the ‘ole battle cry, “drill baby drill” and get their DUCs in a row in order to maintain production quotas.
Following our exclusive quarterly OCTG Inventory Yard Survey in October we’ll put on our thinking caps and organize our 2022 OCTG forecasts for the November Report. It is there where we’ll pore over our many lessons learned to answer the age-old question: what does the new year hold for OCTG? Until then we can’t help but wonder, are we looking at another year in the school of hard knocks or will the class of 2022 make the grade?
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Photo Courtesy Chesapeake Energy