Hottest Commodity in the Oil Industry: Elements by Javier Blas

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The hottest commodity in the oil industry isn’t crude, gasoline, diesel or jet fuel. Nor is it an exotic petroleum feedstock used to make plastics. The hottest commodity goes by the acronym of OCTG, meaning oil country tubular goods — a verbose way to say drill pipe.

The benchmark price for drill pipe has surged to a record $4,150 per short ton, a 90% increase from $2,300 a year ago. The bounce may not be as high as some others in the oil industry, but it matters more because of the spillover effect: rising drill-pipe prices mean American shale drillers are increasing production more slowly than expected, and that, in turn, means higher oil prices worldwide.

Oil executives singled out drill pipe as a key source of concern during the recent round of second-quarter earnings conference calls. Take, for example, Richard Jackson, a senior vice president for Occidental Petroleum Corp.: “OCTG has seen some of the highest sort of inflationary pressures.” And the problem is about to get worse.

First, there’s the supply: American steelmakers are struggling to raise production in the face of high energy costs. In the past, Russia sent a large chunk of its OCTG exports to the US, but that flow has largely stopped since Moscow invaded Ukraine. Russia steel-pipe suppliers accounted last year for more than a fifth of global OCTG supply, according to the Rystad Energy consultancy.