Flange Economics (Part 3): Crude Oil and Flange Prices
The supply curve is not the only thing that can change the economics of carbon steel flanges. The demand curve can shift as well, and the price of crude oil plays an integral role. Generally speaking, higher crude oil prices increase the demand for carbon steel flanges, which are needed to support increasing production volumes. However, since crude oil and flange pricing are not perfectly correlated, it is very difficult to predict the impact crude oil changes. That being said, the ~60% increase in the price of crude oil (Figure 4) over the past 18 months has undoubtedly shifted the demand curve to the right (Figure 5) and increased the price of carbon steel flanges, and unlike the supply curve shifts we discussed (in Parts 1 and 2), this shift in demand happens almost immediate *impact on the carbon steel flange market.
* A long-term increase in demand is often met with an increase in the supply curve and vice versa. This dulls the impact on pricing in the long term, but large spikes can be possible in the short term.
Figure 4: Price Fluctuations of Crude Oil during the past 18 months