July 2017 Monthly Average Crude Oil Price

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The monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil edged higher in July, increasing by $1.45 (+3.2%), to $46.63 per barrel. The advance occurred despite a weaker U.S. dollar, the lagged impacts of a 494,000 barrel-per-day (BPD) rise in the amount of oil supplied/demanded during May (to 20.0 million BPD), and a continued decline in accumulated oil stocks (to 482 million barrels). 

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Comments from ASPO-USA’s Peak Oil Review Editor Tom Whipple:

“Oil prices were strong [during the last full week of July] with New York futures closing about $4 a barrel higher for the week at $49.71 and London at $52.52. Behind the move was another unexpectedly large decline in U.S. stockpiles of 7.2 million barrels. This decline was brought about by a high level of U.S. refinery consumption of almost 17.3 million b/d of crude the week before last. This was 620,000 b/d higher than in the comparable week in 2016.  A reduction in Saudi shipments to the U.S. was also seen as responsible for the unusually large decline in inventories.

“U.S. exports of crude and oil products remain strong. Exports of the lighter shale oils from the Gulf ports are doing well, and there are plans to increase U.S. oil-export capacity by allowing exports from Louisiana's offshore LOOP terminal which can handle larger tankers. The higher demand for U.S. oil products has been caused by refining problems in Mexico and Venezuela that has led to higher imports of finished products. The spread between Brent and WTI crude prices is making U.S. exports more competitive, and U.S. crude has started to be shipped to distant refineries.

“Goldman Sachs said last week that the oil markets are rebalancing more quickly than it had expected a few weeks ago. The firm cited higher demand, the OPEC production cut, strong withdrawals from U.S. inventories, and a declining rate of increases of rigs in the U.S. rig count. If the trend in U.S. stocks continues, Goldman expects the oil markets to be rebalanced by early 2018.

“The OPEC Production Cut: The St. Petersburg OPEC meeting to discuss the OPEC production seems to have resulted in little change. There was no discussion of further output cuts and the pressure to include Libya and Nigeria that was being called for by several members remains under study. A cutback in Saudi exports to the U.S. is taking place, but it is unclear whether this is being forced by higher summer domestic demand or a deliberate decision to push down U.S. crude stocks.

“U.S. Shale Oil Production: The U.S. oil rig count increased by only two rigs last week suggesting caution on the part of drillers, or perhaps problems in obtaining enough experienced personnel, fracking sand, or the investment capital needed to expand production.  It takes several weeks to reactivate a rig after the decision to activate is made. In mid-June oil was trading at around $43 a barrel which is well below the breakeven point for many drillers. With the increase in prices in the last month, we could see increasing rig reactivations later next month.

“The backlog of drilled but uncompleted shale oil wells has increased by nearly 1,000 this year to over 6,000. Some of this may be due to drillers holding back while waiting for higher oil prices, but many are saying that there simply are not enough qualified fracking crews left after the severe cutbacks in the last few years. Prices for fracking services have doubled in the last year which has created considerable pressure on drillers with U.S. oil still under $50 a barrel.” 

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Selected July 28 news items from Oilprice.com Editor Tom Kool include the following:

“Shell's CEO: Oil prices ‘lower forever.’ Royal Dutch Shell's CEO Ben van Beurden said this week that oil prices will likely remain ‘lower forever,’ not just because of too much supply, but also because the coming wave of electric vehicle adoption will lead to peak demand, possibly as soon as the late-2020s. His company now produces more natural gas than oil and will continue to diversify. Meanwhile, the company posted better-than-expected profits for the second quarter at $3.6 billion, or more than three times larger than the year before.

“JBC Energy: Oil to drop below $40 in 2018. Unless OPEC makes deeper production cuts, oil prices are in danger of falling below $40 per barrel in the first quarter of next year, according to JBC Energy GmbH. The consultancy sees oil prices trading between $45 and $47 later this year, but then it gets ‘very tricky,’ as demand slows. ‘If OPEC stays the same and we have the same output restrictions even in the first quarter [of 2018], we're looking at a lot of surplus in the market,’ Richard Gorry, managing director at JBC Asia, told Bloomberg. ‘To really tighten the market, OPEC will have to cut more, and I don't know if they want to do that.’”

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.