Environment and Energy

Energy Prices Up—OCTG to Follow?

Written by Tim Triplett

Oil prices topped $80 per barrel this week for the first time since 2014, likely giving a boost to drilling activity and consumption of steel products such as line pipe and oil country tubular goods (OCTG). But don’t expect a big spike in the market.

“The recent increases in oil and gas prices are certainly bullish for drilling activity, but caveats abound,” said energy market expert Kurt Minnich, president of Pipe Logix in Tulsa, Okla.

oil drillWhy the higher oil prices? Energy demand is recovering in parts of the world, drawing down oil inventories and tightening supplies. OPEC members are gradually restoring production cuts made last year to prop up oil prices during COVID and appear united in balancing oil supply to demand in the near-term. This works to prop up oil and gas prices and encourage drilling, Minnich explained. 

Many factors complicate the timing and rate of growth for drilling activity and OCTG demand, he noted. While the rig count has doubled from last summer, it is still down one-third compared to pre-COVID levels in January 2020. Large, publicly owned exploration and production (E&P) companies remain under pressure to improve investor payouts, develop more renewables and respond to ESG (environmental/social/governance) concerns – all of which reduces their spend on new oil and gas wells and thus suppresses OCTG markets. Much of the spend thus far in 2021 has been on completing wells – reducing the DUC (drilled but uncompleted) count – rather than punching new holes in the ground.

Minnich expects demand for OCTG to grow slowly through the remainder of 2021. Much of that demand will be met by imports. The Commerce Department reports that imports of oil country goods rose 36% in the first nine months of the year, including a 94% jump from August to September. Likewise, line pipe imports rose 107% last month, based on import permit applications.

“OCTG prices have skyrocketed over the past 12 months due to elevated steel costs. This creates inventory risks for OCTG suppliers and makes for an exciting market going into 2022,” Minnich said.

By Tim Triplett, Tim@SteelMarketUpdate.com

Latest in Environment and Energy