As we prepared to launch our 36th annual ‘state of the industry’ address, the atmosphere in the OCTG space and center of gravity; Houston was—dare we say—giddy. After two years of dark matter, “giddy” is a feeling that’s almost alien to the oil patch. But don’t be fooled, giddy can be defined as both exciting and unpredictable. Our job was to probe the Y/Y metrics and make sense of it all so we can bring some meaning to otherwise nebulous stats.
For starters, here’s something we haven’t seen in a blue moon: a year-end months of supply stat that transported us back to October of ’08 just after the Chinese import surge washed ashore a boatload of OCTG, depressing all tubular metrics in its wake. Fun fact, the prior quarter’s (3Q08) average for WTI was $118.05/month. The Mill to Sales Ratio chart we included on page 2 of our February OCTG Situation Report confirmed our incontestable Reporting for much of 2021 that demand eclipsed inventories. Another item that has the oilfield flying high is the January average for WTI of $84.40/BBL: a blast from the past we haven’t seen ‘round these parts since October 2014. And while it remains a vague talking point as E&Ps strive to strike a happy medium, this could fuel a marked boost in capital spending (+18 - 25% has been posited) that might evoke a giddy sensation.
On page 7 of our Annual Report we published a galaxy of vital metrics for the past three years in our year-end OCTG stats table. The comparisons Y/Y/Y are always an interesting exercise in time travel. Government import stats lag behind our Report by two months, which is why we’re only now able to wrap up and move beyond 2021. 2020 and 2021 presented every case study for classical and reverse bullwhip effects as our table illustrates. One of the more conspicuous highlights of the year was the consumption/rig tally that landed at its highest count to date. This record high confirms, despite lower rig counts, a significant amount of pipe is making its way downhole. This is also due in large part to the fact that most of the drilling that took place (again) in 2021 happened in the prolific Permian Basin where well productivity continues to set records and consumption/rig trends higher.
Now for the unpredictable side of giddy. It doesn’t take a rocket scientist to recognize the perfect storm that’s been the cause of concern in both the spot and program pricing markets. We devoted a lot of our content throughout 202 to exploring the many layers and particulars of this matter. Suffice to say, it’s not over.
Our subscribers will note that the spot composite price of OCTG rose by the smallest increment since December 2020. Does this suggest that the monthly price hikes have run dry? That would be jumping the gun in our opinion. We still see elements in place for strength in pricing through 2Q22; more so for seamless materials, although the slope of the increases is expected to level off moving into the year. While inventories remain tight, imports and raw material price contractions are making the playing field more competitive, offering new options for supply. That said, there is still an unresolved matter clouding the pricing picture: the looming OCTG trade case for one. There won’t be any clarity on this until the Department of Commerce publishes its Preliminary Determination for the anti-dumping cases on March 15 and nothing final until July of 2022. And we can’t dismiss unpredictable geopolitical issues that contribute to pricing volatility as well.
As we came to the end of our state of the industry address we felt confident in saying, in comparison to 2021, 2022 will be one small step for OFS, one giant leap for OCTG. And while we felt a bit giddy uttering those words, we’ll be even happier to say, “mission accomplished.” Watch this space.
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Photo Courtesy ExxonMobil Unconventionals/XTO Energy