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The
monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil extended
its retreat for a third month, falling $3.23 to $93.31 per barrel. That price drop
coincided with a notably stronger U.S. dollar and the lagged impacts of a 331,000
barrel-per-day (BPD) increase in the amount of oil supplied in July (to 19.2
million BPD), but occurred despite a continued downward trend in crude oil
stocks. The monthly average price spread between Brent crude (the predominant
grade used in Europe) and WTI narrowed by $1.17 in September, to $3.90 per
barrel.
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“In
general the drop in oil prices is being driven by what is perceived to be too
much oil chasing too few buyers,” wrote ASPO-USA’s Tom
Whipple. “Economies are sagging in the EU and China. U.S. demand is up a
bit though not that strong. Credit Suisse says that production cuts are
necessary to shore up oil prices. The outlook seems to be that still lower
prices are ahead (Iran
expects $90/barrel oil by March). If this should happen several crude exporting
countries will have trouble keeping their budgets in balance and some U.S.
shale oil producers will have trouble making a profit.”
News
that Saudi Arabia is cutting its selling price seems to support Whipple’s
prediction. “We consider that absent a supply disruption in Iraq, crude prices
are likely to remain at subdued levels over the medium term as supply growth
exceeds demand growth,” agreed National Australia Bank economist Phin
Ziebell. However, “given that crude futures are already at their multiyear
lows, we see limited downside risk to prices at this juncture,” said Barnabas
Gan, an analyst at Singapore’s OCBC Bank, “especially as geopolitical
risk-premiums may have already been substantially narrowed.”
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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.
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