October 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 for a fourth consecutive month in October, increasing by $1.63 (+3.3%), to $51.45 per barrel. The advance coincided with a stronger U.S. dollar, the lagged impacts of a 141,000 barrel-per-day (BPD) drop in the amount of oil supplied/demanded during August (to 20.2 million BPD), and a gradual decline in accumulated oil stocks (to 455 million barrels). 

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According to ASPO-USA’s Peak Oil Review Editor Tom Whipple, the main impetus for the price rise was “comments by Saudi Crown Prince bin Salman that he backs an extension of the OPEC production freeze until the end of next year. Coupled with the Prince's statement were upbeat OPEC pronouncements about the increasing demand for its oil and the dubious proposition that compliance with the production cut was now at 120% of the agreed numbers. Beyond the hype, however, are real concerns that the Iraqi, Iranian, and Venezuelan situations could deteriorate and lead to lower exports.

Despite four months of sustained price increases, “many are skeptical that this bump will last for long,” Whipple continued. “These skeptics cite increasing U.S. shale oil production, and the possibility that even higher U.S. exports will cut into the price of Brent oil as U.S. oil is now so much more attractive. Some are saying that exports of U.S. shale oil and condensates could move closer to 3 million BPD shortly. There now seems to be an agreement between the Iraqis and the Kurds to keep oil flowing through the Kurd-controlled pipeline to Turkey, reducing concerns that the 300,000 BPD of Kirkuk oil would remain shut in for an indefinite period.” 

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Oilprice.com Editor Tom Kool also mentioned that OPEC is increasingly looking at extending production cuts through 2018:

The Wall Street Journal reported that Saudi Arabia and Russia are leaning towards agreeing to extend their production limits through the end of 2018, a move that could be finalized at the upcoming meeting in Vienna on November 30. With those two countries on board, it would be likely that the rest would fall in line. Russian energy minister Alexander Novak warned earlier this week that Russia would boost output by 100,000 bpd next year if the agreement lapsed, while top Russian and Saudi officials also reassured the market about their intentions. “We don't want to do anything that will shock the market…and we won't stop our efforts halfway," Saudi energy minister Khalid al-Falih told reporters. Separately, al-Falih assured an orderly exit from the deal. "When we get closer to that (five-year average) we will decide how we smoothly exit the current arrangement, maybe go to a different arrangement to keep supply and demand closely balanced so we don't have a return to higher inventories," he told reporters. An extension through the end of next year is rapidly becoming the baseline assumption for the November meeting.

Kool highlighted an article by Reuters arguing that “falling U.S. oil inventories are a sign of a shift towards backwardation for WTI, a state in which near-term oil contracts trade at a premium to longer-dated oil futures. With Brent already in a state of backwardation, the downward sloping futures curve for WTI would be another signal that the oil market is tightening. Backwardation tends to appear during periods of market tightening and would suggest higher oil prices are possible.”

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.