July 2018 Monthly Average Crude Oil Price

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The monthly average U.S.-dollar price of West Texas Intermediate crude oil advanced in July, rising by $3.16 (+4.7%), to $71.04 per barrel. The increase occurred within an environment of a stronger U.S. dollar, the lagged impacts of a 416,000 barrel-per-day (BPD) jump in the amount of oil supplied/demanded during May (to 20.4 million BPD), and a leveling-off in accumulated oil stocks (monthly average: 408 million barrels). 

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From the 30 July 2018 issue of Peak Oil Review:

Oil prices climbed steadily through Thursday (7/26), supported by easing US-EU trade tensions and a temporary shutdown by the Saudis of a critical crude oil shipping lane. On Friday prices fell in sympathy with the US equities market to end the week at $74.29 in London and $68.69 in New York. Crude prices were unfazed last week by the unexpectedly robust US GDP figure, or the threatening rhetoric exchanged between Tehran and Washington.

There are so many issues affecting oil prices these days that analysts are all over the map on forecasts for oil prices. At the bottom of the forecast range is Citi bank which says that Brent soon could fall back into a trading range of $45 to $65 a barrel. Goldman Sachs is in the middle forecasting a $70-80 range for Brent, while Bank of America says that Brent could rise to $90 by the second quarter of next year.  However, the Bank says that should Iranian exports be completely cut off then there would be a price spike above $120 a barrel. An interesting outlier from economist Philip K. Verleger suggests that oil prices could increase to $200 a barrel solely because of new regulations on sulfur emissions for maritime fuels which begin in 2020.

Some believe that the markets are ignoring the risks of tightening supplies. These analysts note that the expected increase in oil exports from OPEC and Russia has not materialized and that reports of spare Saudi capacity that will be brought into production are overblown. The attack on two Saudi oil tankers in the Strait of Bab El Mandeb by Yemeni Houthi forces could presage more troubles in the area. The Bab El Mandeb is not militarized by US-NATO naval forces -- which means it is far more exposed to attacks than the Strait of Hormuz. 

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Selected highlights from the emailed 31 July 2018 issue of OilPrice.com Intelligence Report include:

Oil prices rose on Monday (7/30), in part because of a weaker dollar. But prices then fell significantly on Tuesday. "The market's attempting to stabilize," said Gene McGillian, VP of research at Tradition Energy. "Right now we're seeing a balance between the ideas that the increase in production from Saudi Arabia and Russia is going to offset the loss in Venezuela and Iran." As July draws to a close, oil is set for its largest monthly loss in over a year.

Permian pipelines beginning to bottleneck. Permian pipelines are starting to “max out,” according to data from Kayrros. That means that price differentials are set to widen through mid-2019 as production continues to edge up. The earliest relief will come from the BridgeTex pipeline expansion, which will come online in early 2019, but it will only add 40,000 bpd. The bottleneck is expected to force a slowdown in production growth, and Morgan Stanley estimates that the Permian might only be able to add 360,000 bpd next year, down from the Wall Street consensus of about 650,000 bpd.

Trump plans to water down fuel efficiency standards. The Trump administration is expected to unveil a deregulatory effort aimed at fuel efficiency standards in cars and light duty trucks. The effort will freeze Obama era regulations after 2020, requiring automakers to average a fleet wide corporate average fuel economy (CAFE) at about 37 miles per gallon, instead of allowing those standards to steadily rise to above 50 mpg through 2025. The proposal could lead to increased fuel demand by about 500,000 bpd through 2029. The crucial and controversial component would be the federal government's attempt to strip California of its authority to set its own standards. It is almost certainly headed for a protracted legal fight.

Why did Saudi Arabia cease oil shipments through Bab el-Mandeb? Reuters looks into the question of whether Saudi Arabia had political motives when it halted oil shipments through the Strait of Bab el-Mandeb last week. Because other exporters did not suspend shipments, Saudi Arabia's move is curious. Saudi officials could be trying to draw western powers into the war with Yemen by sounding the alarm on the threat to oil shipments, or it could be putting pressure on Europe to take a harder line on Iran.

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.