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How The Crude Oil Price Drop Impacts US Steel’s Tubular Segment

How the fall in crude oil prices has impacted US Steel (Part 6 of 8)

(Continued from Part 5)

Tubular segment exposed to crude prices

As discussed previously, the oil and gas industry uses US Steel’s tubular products. While the overall growth in the steel industry has been modest, steel demand from the energy sector has been growing in double digits. The increasing oil and gas production in the US has led this demand growth.

Steel companies like US Steel (X), ArcelorMittal (MT), AK Steel (AKS), and Nucor (NUE) benefited from this. Some of these companies are part of the SPDR S&P Metals and Mining ETF (XME).

Due to high crude prices globally, it made economic sense for energy companies to produce more oil through shale. However, the fall in crude prices makes production of oil from some wells unviable. This also hampers further investments in this segment.

Capital expenditures may decrease

Oil companies make investments in new projects based on the long-term outlook for crude prices. US rig count is up ~10% year-to-date, as the above chart illustrates. However, due to the current trend in crude oil prices, there is a very high possibility that exploration companies will reduce their capital expenditure budgets.

Rig counts reflect the number of rigs that are currently active. The rig count is a barometer of the oil and gas industry’s health. Crude oil prices affected the rig count.

Steel companies might take a hit

As discussed previously, steel is necessary to make rigs and transport oil. Industry analysts expect steel demand from the energy sector to come down as exploration companies reduce their capital expenditure budgets. There has been no knee jerk reaction from oil and gas producers so far. However, there was a disturbing headline recently that we’ll discuss in our next part.

Continue to Part 7

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