August 2018 Monthly Average Crude Oil Price

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The monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil retreated in August, edging down by $2.93 (-4.1%), to $68.06 per barrel. The decrease occurred within the context of a stronger U.S. dollar, the lagged impacts of a 348,000 barrel-per-day (BPD) rise in the amount of oil supplied/demanded during June (to 20.7 million BPD), and relatively stable accumulated oil stocks (monthly average: 407 million barrels). 

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From the 4 September 2018 issue of Peak Oil Review:

The struggle between the soon-to-be-implemented Iran sanctions and the threat to demand posed by the trade war continues as the primary factor driving [oil] prices.  An unexpectedly large drop in the U.S. crude inventory of 2.6 million barrels last week and a four-unit increase in the US oil rig count last week contributed to the volatility of the market.

Reuters reports that oil analysts cut their price forecasts for 2018 for the first time in almost a year amid growing concern over the impact on crude demand from escalating trade tensions.  Iranian oil exports are already falling rather smartly; however, there is a floor under how far they will fall probably somewhere between 1 and 2 million b/d.  Chinese demand alone will ensure that they do not drop any further.

The U.S.-China trade war, however, does not seem to have a definite end in the immediate future and many are wondering just how much economic damage the standoff will do. There are too many factors, such as the pace of oil production from Venezuela, Libya, and the Permian Basin, to say whether any decline in the global demand for oil will offset looming production problems. 

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Selected highlights from the 31 August 2018 issue of OilPrice.com’s Oil & Energy Insider include:

Iran complies with nuclear deal, but oil exports falling. The International Atomic Energy Agency said this week that Iran has continued to comply with the terms of the 2015 nuclear deal, despite the withdrawal of the U.S. from the accord. The IAEA said Iran was honoring its commitments to the deal -- specifically, to limit stockpiles of nuclear materials and to grant access to IAEA inspectors. There were no areas in which Iran breached the deal. Nevertheless, the U.S. has stepped up confrontation, having added new demands earlier this year that few expect Iran would ever accept. As such, there is almost no chance of a de-escalation, which means Iran's oil exports are going to continue to fall. The WSJ reports that Iran's exports could fall by as much as 700,000 bpd in August, down to just 1.66 mb/d. By November, exports could dip below 0.8 mb/d.

Texas oil production fell in June. For the first time in 16 months, Texas' oil production fell year-on-year in June. State data finds that Texas' oil production fell to 98.9 million barrels in June, down 2 percent from the same month in 2017 and down 7 percent from the previous month. The sudden drop suggests that pipeline constraints are starting to impact production rates.

OPEC and non-OPEC look to formalize coordination. OPEC and non-OPEC countries are considering ways to formalize their cooperation later this year, eyeing a charter that would extend their coordination on stabilizing the oil market. Under the charter, ministers would meet once a year and technical experts would meet twice a year. The coalition would meet in Vienna and would be hosted by OPEC, but would remain a separate entity.

OPEC production rises despite Iran declines. OPEC production rose to its highest point this year in August, pushed up by a surge in output from Iraq and a restoration of production in Libya. OPEC production increased by 220,000 bpd in August, rising to 32.79 mb/d. Saudi Arabia added a modest 80,000 bpd, taking output up to 10.48 mb/d, after reducing its output in July.

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.