Oil Industry Faces Cost Inflation as Vallourec Lifts Tube Prices

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In the latest sign of cost inflation for the oil and gas industry Vallourec SA, a French maker of steel tubes, said it is passing on rising prices for raw materials to its clients.

Providers of equipment and services to drillers have been warning about rising costs, particularly in North America. Liberty Energy Inc., the world’s second-largest fracker, sees demand for its gear and services outpacing supplies into next year. Schlumberger expects its prices to increase steadily around the world.

The “highly favorable market conditions” in North America should continue into the second half both in price and volume terms, Vallourec predicted on Wednesday, when it released second-quarter earnings. The company, based near Paris, also said it will pass cost increases onto customers in Europe, the Middle East and Brazil.

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“We’re transferring our costs to our clients, and this is true in all geographies,” Vallourec Chief Executive Officer Philippe Guillemot said on a conference call. “There’s no sign that demand for oil tubes is running out of breath. The embargo on Russian oil is only adding tensions on the market.”

Signs that inflationary pressures are feeding through the supply chain may dim investors’ medium-term expectations for oil and gas producers, which are set to post record profits in the second quarter.