June 2016 Monthly Average Crude Oil Price

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The monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil extended gains for a third month in June when rising by $2.06 (+4.4%), to $48.77 per barrel -- the highest price since July 2015. The price increase coincided with a slightly stronger U.S. dollar, the lagged impacts of a 352,000 barrel-per-day (BPD) decrease in the amount of oil supplied/demanded in April (to 19.3 million BPD), and a continued modest decline in accumulated oil stocks. The monthly average price spread between Brent crude (the predominant grade used in Europe) and WTI reversed in June -- i.e., WTI’s price was $0.42 per barrel higher than Brent. 

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Commentary from ASPO-USA’s Peak Oil Review editor Tom Whipple:

“In the wake of the Brexit vote, analysts are all over the board as to where prices will be by the end of the year. Some are talking about $85 a barrel while others are looking for a retreat to less than $30 again. Nearly all agree that the markets will "rebalance" with supply and demand coming together as demand increases and the supply continues to drop as the impact of the much lower investment levels during the last two years reduces supply.  For the next six months, however, there is uncertainty especially concerning the spate of unplanned outages that have taken place in the past few months. Oil worker strikes such as in France and Norway likely will be settled quickly, and Alberta tar sands production will soon be back to normal by the end of the summer. The outages in Libya, Nigeria, and Venezuela, however, are more uncertain and seem to be getting worse rather than better in the immediate future.” 

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News items from OilPrice Intelligence Report editor Evan Kelly:

Canada’s oil production to grow 42 percent by 2025. IHS Energy projects a 42 percent increase in Canadian oil sands production, bringing output up to 3.4 mb/d over the next decade. That would mean Canada’s oil sands, torn apart by fires in recent weeks, would add 1 mb/d in the coming years. However, most of those gains will come from projects that are already under construction and received final investment decisions before the collapse of oil prices. After 2018, when the backlog of these projects are completed, there will likely be no more greenfield projects in the pipeline. Any further gains will have to come from brownfield sites, IHS says.

New hiring in the Bakken. Oilfield service companies in the Bakken are beginning to hire again for completion services, a sign that oil producers could start to work through their backlog of drilled but uncompleted wells (DUCs). “We are starting to see a definite increase,” Cindy Sanford, a manager at the Williston office of Job Service North Dakota, told the Forum News Service. She said that companies are looking for workers for fracking crews and well completion. “It’s not as crazy as it was before, but we’re starting to see some activity.” If drillers are moving to complete old wells, that could bring new production online, a month after the Bakken reported a huge decline in output. It also suggests that companies can turn a profit at $50 per barrel, a threshold that could trigger well completions in other parts of the country.

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.