December 2015 Monthly Average Crude Oil Price

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The monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil in December dropped to its lowest point since April 2004, retreating by $5.25 (-12.4%), to $37.19 per barrel. The price decrease coincided with a stronger U.S. dollar, the lagged impacts of a 125,000 barrel-per-day (BPD) uptick in the amount of oil supplied/demanded in October (to 19.4 million BPD), and a halt in the accumulation of oil stocks. The monthly average price spread between Brent crude (the predominant grade used in Europe) and WTI narrowed by $0.76 in December, to $1.07 per barrel. 

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Commentary from Oilprice.com editor Evan Kelly: “The outlook for oil markets in 2016 is just as murky as most of 2015 has been. WTI and Brent close out the year at relative parity in the mid-$30s per barrel. Oil storage levels are high both in the U.S. and around the world. Production is not declining from OPEC, and in the U.S., output is only slightly down at this point. Demand was high in 2015, but will drop off in 2016. The early signs of softening demand growth are already coming into view. Iran is expected to bring oil production back to the market, which could offset expected declines in the U.S. Goldman Sachs says oil may have to drop into the $20s in order for the necessary contraction to take place.

“On the other hand, the state of oil is not all negative. The optimistic view is that oil companies continue to find ways to reduce costs, even if further efficiency gains are becoming harder to achieve. But, taking a multi-year view on oil, it is important to remember that prices are unsustainably low. Output is going to need to be shut in, and prices will rebound. Depletion will overwhelm new sources of supply. Stronger companies could emerge better off on the rebound as the industry consolidates to a more sustainable size. Moreover, it is possible that the drastic cutbacks in investment today will only lead to a much larger price spike two or three years down the road.” 

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Commentary from ASPO-USA’s Peak Oil Review editor Tom Whipple: “There has been no change in the conventional wisdom that oil prices will continue to fall further in the coming months.  The CEO of BP said over the weekend that the low point could be in the first quarter.  Goldman Sachs continues to say that it may take prices as low as $20 per barrel to force the production cuts necessary to rebalance the markets.  European oil inventories are already at capacity, and there are reports that ‘oil inventories in Asia are going to get closer to saturation in the first quarter.’

“Obviously there are too many forces at play in the global economy and oil markets this year to make any kind of responsible estimates of prices and production beyond the next few months. Optimists see recovery of the economy and oil prices later this year. Pessimists talk of a global recession. For the immediate future, the major exporters maintain they are going to keep up production and even the beleaguered US shale oil industry is maintaining production remarkably well.

“A lot depends on how much lower prices go in the coming year and how long they stay at extremely low levels. For now, the most optimistic predictions about when a recovery will occur are coming from those with a vested interest in higher oil prices, such as exporting nations or financial institutions that start from the premise that too much pessimism will scare off customers. One thing that seems reasonably clear is that the very low prices will result in declining oil production, at least in the US, Canada, and in the non-OPEC countries where oil production is not the hands of a government that can swallow the low prices.”

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.