If only we could have included an antacid with each Report this month. Yes, there’s a lot to digest here and no, we can’t sugarcoat it. Considering the events of the past month reminds us of an old adage, “the best way to eat an elephant is one bite at a time.” That’s how we addressed the situation currently facing the OCTG sector in hopes of navigating a scenario that no one could have envisioned for 2020 in our March market intel.
A brief recap follows, simply to set the stage for our discussion. Our original forecast for all things OCTG in 2020 (November 2019 Report) was down but not a “downer.” That was then ($50/bbl WTI) this is now (~$30+bbl WTI). In fairly short order the COVID-19 contagion reared its ugly head in the US, and the Saudi and Russian Oil-igarchs found themselves in a game of chicken giving new meaning to the word turmoil. By the beginning of last week, the whiplash bash took an already precarious US stock market down for the count.
Reactions have run the gamut from nonchalance (gas companies) to near nuclear (oil companies) and everything in between. The bottom line, at this moment in time, is E&Ps slashed billions of planned US oilfield spending this past week. Realizing the wound is still fresh for OCTG markets reeling from the shock & awe, we didn’t want to add more fuel to the fire when it came to prognosticating. On that note, we plan to revisit our 2020 OCTG forecasts in April once we’ve completed our exclusive 1Q20 OCTG Inventory Yard Survey and the dust has begun to settle.
Meanwhile, with so much to unpack we addressed a few key points as they relate to OCTG. At present, most of the POs are in for April/May and orders are locked in through April.
Cancellations on production runs are expected as early as May. There’s also product on the water: imports coming in from overseas which are slated to arrive in late March and continue through June. Coupled with end users’ surplus stocks from a rash of recent rig drops, this state of play is certain to boost inventory levels in Q2. We will be able to determine the extent of the expected build with authority when we host our 2Q20 inventory survey in July. Our March Report provided a number of historical stats so that subscribers would be better able to mitigate foreseeable inventory overhangs.
Moving onto the pricing and supply side of the equation, we discussed the pricing situation in 2019 and where that lead us at this juncture of 2020. After launching numerous informal surveys throughout the supply chain we were able to gather a consensus view on the anticipated price slide and what that means to the OCTG supply chain moving forward.
Granted we’re heading into uncharted territory where “business as usual” will be anything but. In times like these perseverance is the key to survival. Interestingly the word “persevere” contains the word “severe,” which wouldn’t have been lost on Winston Churchill who was quoted as saying, “if you’re going through hell, keep going.”
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