Oil Price Surges to Over $60 Raising Hopes for OCTG

The spot price of West Texas Intermediate (WTI) broke through the $60 level on Dec. 29 for the first time since Dec. 18, 2014. It reached $64.22 on Jan. 12 before falling back to $63.82 on Jan. 16. The total number of operating rigs exploring for oil and gas increased by 15 in the week ending Jan.12, the largest weekly increase since March 12, 2017. The prices of oil and natural gas drive the consumption of energy-related steel products including oil country tubular goods, pipe fittings and well head equipment, among others. About 5.5 million tons of hot rolled sheet was used to make welded tubular goods in 2017 (not including OCTG).

Bloomberg reported the following to Mining.com on Jan. 18: “When OPEC and Russia meet this weekend to review their strategy for clearing a global oil glut, they’ll face an unusual problem. As their output cuts, coupled with robust global demand, tighten the market, crude prices have soared to a three-year high near U.S. $70 a barrel. ‘There is an unintended consequence from this higher price,’ said Ed Morse, head of commodities research at Citigroup, Inc. ‘OPEC are fearful of not only the shale response, but of deep water and of oil-sands from Canada.’ The producers will formally review their accord in June, and may start to wind it down in the second half of the year, Citi’s Morse said. Saudi Arabia and Russia, the biggest producers in the pact, have repeatedly stressed that when the time comes to end the deal it will be done gradually. In the meantime, the pressure to change strategy is likely to ease in coming weeks as oil prices retreat. Crude futures will slip in tandem with a lull in seasonal demand as the need for winter fuels abates, and as hedge funds take profits from the recent rally. ‘For now, with the price strength looking very temporary, I think OPEC will say we’re on our way to getting the market rebalanced, and keep going,’ Morse said. But that resolve may not last all year. ‘There could be an agreement on ramping production back up over the summer.’”