June 2017 Monthly Average Crude Oil Price

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The monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil retreated again in June, falling by $3.30 (-6.8%) to $45.18 per barrel. The decrease occurred despite a weaker U.S. dollar, the lagged impacts of a 506,000 barrel-per-day (BPD) drop in the amount of oil supplied/demanded in April (to 19.7 million BPD), and a continued decline in accumulated oil stocks (to 503 million barrels). 

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“While last week's U.S. stocks report showed a small increase in the total U.S. crude inventory, traders focused on a 900,000 barrel drop in U.S. gasoline inventories and what the EIA says was a 100,000 b/d drop in U.S. oil production the week before last,” wrote ASPO-USA’s Peak Oil Review Editor Tom Whipple on July 3. “Analysts say that a major storm in the Gulf that week and lower production in Alaska due to maintenance were likely to be the cause of any decline in U.S. oil production.

“With U.S. oil prices still in the mid-$40s, there are still questions as the how long the U.S. shale oil industry can continue to grow with oil selling for less than the cost for many drillers. Last week the U.S. oil-rig count dropped for the first time since January, even if it was only by two units.  Optimists concede that oil prices need to be above $50 a barrel for all but the most efficient shale oil operators or large companies that have other more profitable sources of revenue.” 

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Selected June 30 news items from Oilprice.com Editor Tom Kool include the following:

Goldman slashes oil price forecast by $7.50 per barrel. This week, Goldman Sachs lowered its three-month estimate for WTI prices from $55 per barrel to $47.50, citing higher production from Libya and Nigeria, as well as the ramp up in U.S. shale drilling. Nonetheless, the investment bank says that the oil market is still moving towards balance, even if slowly. Inventories are falling, demand is rising, and OPEC could do more to cut -- and Goldman says it should.

Libyan production approaches 1 million barrels per day. Libya's output has broken a new multi-year high, rising above 950,000 bpd, according to Reuters. That's up from 935,000 bpd last week. A Libyan source told Reuters that production is fluctuating and coming "close to" 1 million barrels per day. Rising Libyan output is undermining the effectiveness of the OPEC deal.

Keystone XL no longer needed. The Wall Street Journal reports that TransCanada is having trouble finding customers for the capacity in its proposed Keystone XL pipeline. TransCanada has already spent $3 billion on materials, land rights and legal fees, with little to show for it. The support from the Trump administration may not matter if it can't ink deals with customers. The 830,000 barrel-per-day pipeline would cost $8 billion and TransCanada says it wants to secure sales for 90 percent of the pipeline's capacity before it moves forward. But refiners along the Gulf Coast are not as desperate for high-cost Canadian crude anymore, particularly since the U.S. is awash in oil. Still, TransCanada says it is still confident it can find buyers.

Imbalance between heavy and light oil markets. OPEC produces a heavier and sourer form of oil while the U.S., Libya and Nigeria produce lighter and sweeter varieties. This difference is leading to tighter supply conditions in the medium sour market while a glut persists in the light sweet market, according to S&P Global Platts. The disparity presents a dilemma for OPEC. Deeper cuts will tighten the medium sour market further, but it would have a diminished effect on global oil prices, which are more closely linked to light oil. Also, global refiners are switching to lighter forms of oil to take advantage of abundant supply, meaning that OPEC risks losing more customers if it makes deeper cuts.

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.