The New ‘Now’ for OCTG: “To Infinity & Beyond...”
Say what you will, but the environment in which we find the OCTG market today is unlike any other. The “new normal” is now old news. Very little, in fact, has been “normal” since the pandemic that all but razed supply chains throughout the world in 2020. Perhaps there are those who would hope as we move further away from that forgettable year we can go back to where we left off. We would argue there’s no turning back. The ramifications of the pandemic—namely exposing a fragile global supply chain with a very thin margin of disruption and the exodus of workers throughout all industries has decimated any such hope for a return to ‘that’ normal. The only way forward is to reappraise and chart a New Now. The OFS industry must develop strategies for hedging against disruptions while cultivating what’s New into a sustainable, resilient reality—starting Now.
There’s essentially a triad of forces shaping the present tubulars market—and that’s before we consider what impact rising interest rates will have on the industry in the days ahead. But for now, in addition to ongoing labor bottlenecks and various steel trade cases we can add consolidation to the mix. We discuss this aspect further in the August OCTG Situation Report. All these events are and will impact the OCTG market. To what degree will depend, of course, on their outcome. The conclusion of the trade case can’t be predicted, either. Will we return to business as somewhat usual, or will the import market continue to be squeezed? And everyone knows labor issues have been the bane of the oil patch over the last couple of years; the consequences of which have been clearly established.
We’ve certainly witnessed numerous changes over the past decade, further ignited by the oil price shocks of 2020. Consolidation has been part and parcel of the O/G MO as operators equate shale with scale. OCTG distributors have seen several high-profile mergers and acquisitions, too, while going toe-to-toe with the likes of a rig-direct service model. Domestic mills have mostly carried on through thick and thin, deviating only to determine what lane they want to occupy in the big picture. Following a relatively quiet period since 2014, this fall will usher a few new welded participants into the pipeline as well.
We’re of the belief that there’s very little left in the way of shock & awe from here ’til the end of the year. Unless, that is, there’s anyone left who’s counting on a composite price drop before December. If so, stop counting.
Meanwhile, as commodity prices remain pumped, the rig count is continuing its moderate trajectory upward. As we look ahead to the turn of the year, we continue to see more of the same, which is to say demand continues full steam ahead. E&Ps simply don’t want to get caught empty-handed in the new year as most O/G analysts project another year of high energy prices. We also discuss our thinking on OCTG pricing for 1H23 in the August OCTG Situation Report .
Credit may be hard to come by in the days ahead but for now let’s give credit where credit’s due: to the hardworking men and women in the oil patch who’ve contributed to the previous quarter earnings season—one of the best reported since the 2014 downturn. That’s a feat worthy of celebration and there’s no reason to think it’s the last.
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Photo Courtesy Ovintiv Inc.