Increasing US drilling activity driving tubular prices higher

June 18, 2003
Increased US oil and natural gas drilling activity has resulted in higher oil country tubular goods (OCTG) demand, and rising demand coupled with a weak US dollar could drive US tubular prices to record highs, analysts said.

By OGJ editors
HOUSTON, June 18 -- Increased US oil and natural gas drilling activity has resulted in higher oil country tubular goods (OCTG) demand, and rising demand coupled with a weak US dollar could drive US tubular prices to record highs, analysts said.

In 2001, US drilling activity peaked at nearly 1,300 rigs, driving OCTG consumption to
peak levels of about 250,000 tons of pipe per month. This increased demand led to nearly a 30% increase in tubular prices from the lows experienced in 1999, J. Marshall Adkins of Raymond James & Associates Inc. said in a June 9 research note.

Despite the peak pipe consumption, "pricing was still 2-3% shy of the previous decade
highs experienced in 1997 when US drilling activity topped at just over 1,000 rigs and OCTG consumption hit a peak rate of only about 225,000 tons per month," Adkins said.

In absolute terms, imported tubular goods averaged 34,000 tons of pipe/month in 1997 compared with 74,000 tons/month in 2001. Currently, imports are running about 43,000 tons/month, he said.

Meanwhile, the majority of foreign tubular importers are suffering from a weak US dollar while the market for US OCTG manufacturers has been increasing for several months. The relatively weak US dollar has made exporting pipe to the US less attractive for foreign competitors, Adkins concluded.