How Does the Price of Crude Oil Impact Steel?

Higher crude oil prices have the potential to hit you in more places than just the pump this summer.

The price of crude oil is nearing $75/barrel. And that has an impact on all things steel, from the cost to produce it to the price to get it to you. Here are a few:

At the Pump: Let’s start with the most obvious: transportation costs. These prices are heavily influenced by the price of oil—particularly in the summer months. By all indications, summer travel is back, both on the road and in the air.

TSA Checkpoint data for July 2-4 averaged 1.93 million passengers. While it’s not quite back to 2019 levels, it’s well past what it was in 2020 (639,000).
According to the AAA, more than 47 million Americans planned on traveling between July 1-5 this year, up 40% compared to last year.

All this increased traffic leads to higher demand for fuel. Factor this into the already strained market for freight and logistics, and it’s yet another factor into the cost equation of transporting metal.

At the Mill: Crude oil is used in the process of making steel. Estimates from World Steel Assn. put consumption levels in the range of 1.86 million tons in 2020. Don’t expect that trend to reverse anytime soon, as steel use is projected to increase steadily in the coming years to meet the needs of our growing population.

At the Scrap Yard: Some believe summer is typically the time of year when prices for busheling scrap can soften due to easier transport of metal from scrap yards to mills. Steel is produced using one of two methods: Electric Arc Furnaces (EAFs), which use scrap, or Basic Oxygen Furnaces (BOFs), which use iron ore. As stated in a previous edition, a push for more energy efficient steel production is causing greater demand for BOFs. As the cost to transport scrap goes higher, it could increase the busheling scrap—and ultimately the price of metal.

Roughly this time last year, crude oil prices dipped into negative territory for the first time ever due in large part to global transportation coming to a standstill amid COVID-19. That also means it essentially took the price of crude oil out of the equation for many of the above factors. What a difference a year makes.