May 2013 Monthly Average Crude Oil Price

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The monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil regained most of the ground lost since February, rising by $2.73 (3.0 percent) to $94.80 per barrel in May. That price increase occurred despite a concurrent modest strengthening of the dollar, the lagged impacts of still-tepid consumption levels -- including a drop of 183,000 barrels per day (BPD) to 18.5 million BPD in March, and a continued build-up in crude stocks.

The monthly average price spread between Brent crude (the predominant grade used in Europe) and WTI shrank in April by over 33 percent, to $10.18 per barrel -- the smallest differential since December 2011. Brent and WTI prices were essentially identical until the end of 2010. 

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Although the monthly average WTI price rose slightly, daily prices have retreated about $5 per barrel since mid-May. ASPO-USA‘s June 3 Peak Oil Review had the following to say about recent developments:

“Weak demand in the United States and EU, adequate production, large inventories, expectations as to Federal Reserve actions, and little perception of a threat to oil exports from the turmoil in the Middle East have resulted in slipping prices. The decision by OPEC to maintain its 30 million BPD production quota was behind Friday’s sharp decline which left NY oil just below $92 a barrel and London just above $100.

“The EIA reported that US crude stocks grew another 3 million barrels the week before last and are now at the highest level since 1931, a big historical jump from the 1981 high reached only recently. U.S. tight-oil production is up 17 percent over last year with Eagle Ford production now over 500,000 BPD.

“The outlook for the global economy and oil demand in the immediate future is generally not good. Unemployment in the Eurozone hit another record high last week. Nearly all forecasters are making downward adjustments to their outlooks for China, and despite incessant optimism in the financial press, the U.S. economy does not seem to be rebounding in any significant way. The OECD said last week that protracted economic weakness in Europe ‘could evolve into stagnation with negative implications for the global economy.’

“Of long-term significance was last week’s report that China’s coal production fell 2 percent to 1.15 billion tons in 1Q2013, while stockpiles climbed to 150 million tons above normal. China’s coal imports climbed 25 percent to 110 million tons during the period. Rapid growth in China’s coal production, which has been running at around 10 percent a year, has been the backbone of China’s economic miracle.... Without steady increases in coal production it is difficult to see how China can maintain spectacular economic growth rates in coming years by relying on renewables, nuclear, and increased efficiency.”

Given that outlook, futures traders’ pessimistic outlook is quite understandable. 

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The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.