Index Based Cost Modeling for OCTG Price Tracking

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By: Sreyanshu Padhy -- Senior Research Analyst

23 September, 2014

Index Based Cost Modeling for OCTG Price Tracking
WHITEPAPER

Global E&P spend is experiencing a steep growth, thereby driving spend towards oilfield consumables and capital equipment. OCTG constitutes a major percentage of the E&P spending and has unique challenges in sourcing. Premium connections and seamless alloy tubings have seen a major upswing in demand from operators creating a backlog in preferred grades and increasing volatility further. A dynamic mechanism, which can decide the most suitable price and time of buy would aid the category manager to maximize on the savings. An index based model accounts for supply-demand, feedstock prices and other parameters, thereby enabling the category managers to decide on the negotiation levers during buy. It could serves as an invaluable tool to category managers in planning their OCTG purchase cycle. Over the past two years, the oil country tubular goods market has been very erratic in that constant capacity additions have kept pricing weak. The recession reduced energy demand and pushed down prices marking a low in exploration and development in oil and natural gas that had been going strong for almost half a decade from 2003 onwards. Global rig counts have picked up as liquid rich plays are becoming popular due to high oil prices. As OCTG demand always goes the same track as rig counts, this sector has been seeing steady growth since 2009. All this has driven volatility in OCTG pricing. As a category manager, tracking and predicting the OCTG prices are a very useful tool to make good sourcing decisions. Thus a new price forecast which is more accurate and more flexible is needed.