October 2014 Monthly Average Crude Oil Price

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The monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil extended its retreat for a fourth month, tumbling $8.16 to $85.05 per barrel. That price drop coincided with a strengthening U.S. dollar, the lagged impacts of a 112,000 barrel-per-day (BPD) increase in the amount of oil supplied in August (to 19.3 million BPD), and an abrupt turnaround in crude oil stocks. The monthly average price spread between Brent crude (the predominant grade used in Europe) and WTI narrowed by $1.11 in October, to $2.77 per barrel.

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“So far,” wrote ASPO-USA’s Tom Whipple, “the two major reactions to the precipitous decline in oil prices have been the price war which seems to have broken out within OPEC as some members move to retain their market share, and the issue of whether some of the higher-cost U.S. shale oil production remains an economic proposition.  A new survey shows that OPEC’s production increased by 53,000 BPD in October at the time when it should be declining to counter falling prices. Some members are unhappy, but the indications suggest that there will be no major changes at the 27 November OPEC meeting.

“The issue of whether the drop in oil prices will curtail U.S. shale oil production is beginning to attract more attention. Initially shale oil production operators were running around denying that there was a problem and that prices could drop another 20 percent and shale oil would still be profitable. The people who are saying this are already running at a cash flow deficit and need constant infusions of new Wall Street capital to keep drilling. Other larger oil companies which are now exclusively in the shale oil business, however, are beginning to suggest that some planned production may be curtailed next year. Transportation difficulties and the requirement to reduce natural gas flaring are adding significantly to production costs on Bakken shale oil so that we may see some production curtailment in the coming year if oil prices remain lower than they have been in recent years for an extended period.”

Futures traders apparently see oil prices staying in the low $80s for the next two years. 

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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.