March 2, 2016

Where Oil Goes, OCTG Follows

Supply continues to outdistance demand in the oil and gas market, holding down energy prices and with them demand for oil country tubular goods—a daunting imbalance that could persist until 2017 or beyond, said Kurt Minnich, president of Pipe Logix, Tulsa, Okla., speaking at the National Association of Steel Pipe Distributors annual convention Feb. 26 in San Diego, Calif.

“It’s a very difficult time. Our success has been our demise,” he said, referring to the North American “shale gale” that has contributed to the world’s oversupply of oil. Drilling in the shale plays across the country has increased U.S. production to more than 9 million barrels per day, up from 5.5 million in 2010. At the same time, the OPEC nations are producing at a rate of more than 33 million barrels per day, a seven-year high. Russia’s output is 10.5 million barrels, an all-time peak for the post-Soviet era.

Such overproduction has driven oil prices down to less than $30 per barrel from around $110 in the 2011-13 time period, Minnich said. At the current price, exploration and production companies have little incentive to sink new wells, thus the active rig count in North America has plummeted to less than 850 from more than 2,000 in 2015. OCTG demand has followed the same downward trajectory, declining from shipments of about 600,000 tons to just 200,000 tons per month. Inventories of OCTG products have accumulated to more than 750,000 tons, and the supply chain is struggling to destock the excess. Inventories of oil are nearing the industry's capacity to store them. “Inventories now are very high. Until we have some kind of balance in supply and demand, we won’t have an oil price we can depend on,” he said.

What’s the forecast for oil prices? Their recovery depends on various macroeconomic and geopolitical factors that defy prediction. The experts’ consensus calls for modest improvement to the $40 to $50 per barrel range in the near term, and perhaps $60 in 2017. “That’s not particularly uplifting,” Minnich acknowledged.

Ending on a more upbeat note, he said the outlook for line pipe sales is more positive. Large natural gas line projects have totaled around 500 miles per year in the past few years. In 2016, projects under construction or approved are estimated at 1,400 miles. By 2017, that figure could hit 3,400 miles. “Those are numbers we have not seen in a while, and that is encouraging.”
 

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Monday, October 23, 2017