October 2018 Monthly Average Crude Oil Price

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The monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil edged up in October, by $0.52 (+0.7%), to $70.75 per barrel. The increase occurred within the context of a stronger U.S. dollar, the lagged impacts of an 681,000 barrel-per-day (BPD) jump in the amount of oil supplied/demanded during August (to 21.3 million BPD -- the highest volume since February 2007), and a corresponding rise in accumulated oil stocks (monthly average: 419 million barrels). 

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From the 5 November 2018 issue of Peak Oil Review:

“During September the threat of the renewed U.S. sanctions on Iranian exports forced world prices into the high $80s with many predicting that we would soon see $100 oil again.  During the past month, however, market sentiment changed as it appeared the sanctions might not be as effective as some hoped, the global oil production increase, higher prices and the brewing U.S.-China trade war threaten demand in the coming years.

“Most of the world's top oil trading houses expect prices to decline next year as slowing global economic growth and rising oil supply compensates for fewer Iranian crude barrels on the market.  Speculators second this sentiment with hedge funds closing out the bulk of their long positions in the oil market during October.  There are a few outliers such as Goldman Sachs which sees oil prices back to $80 a barrel by the end of the year, but for now, the sentiment that demand for oil will fall in the coming year seems to be predominant.

“A $14 decline in world oil prices is starting to pressure the budgets of the world's largest exporters and is likely to restrain in growth in investment in finding and producing from new oil fields.” 

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Selected highlights from the 2 November 2018 issue of OilPrice.com’s Oil & Energy Insider include:

U.S. to grant waivers to eight countries importing Iranian oil. The U.S. has granted exemptions to eight importers of Iranian oil just days before sanctions on Iran take effect. The countries will be allowed to continue to import oil without fear of retribution from the U.S. as long as they continue to make reductions in those purchases, according to Bloomberg. Four of the countries include Iran's top buyers - China, India, South Korea and Japan. The other four were not identified in the Bloomberg report, but the decision is expected to be announced on Monday.

U.S. oil production surges. The EIA said the U.S. produced more than 11.3 mb/d in August, a massive jump of over 400,000 bpd from a month earlier. The new record high also made the U.S. the largest oil producer in the world. Record output, combined with higher production from OPEC, has dealt sharp losses to crude oil prices amid mounting fears of oversupply.

U.S. seeks to keep Middle East oil flowing. U.S. diplomats have reportedly stepped in to try to resolve disputes in the Middle East to increase oil flows. According to the Wall Street Journal, the U.S. is trying to broker a deal between Saudi Arabia and Kuwait over the Neutral Zone oil fields, which have 500,000 bpd of capacity but have been offline for years. The U.S. is also trying to help Iraq export more oil through Kurdistan, which would add another 300,000 bpd or so to global supplies. Washington is trying to ease these burdens at a time when it is seeking to shut in Iranian production.

Continental Resources doubles resource estimate. Continental Resources doubled its estimated recoverable resources to 30-40 billion barrels, up from the previous estimate of 20 billion barrels set in 2011. "With today's completion technology we are recovering 15% and potentially 20% of the oil in place on a primary basis," Continental's President Jack Stark said during today's earnings conference call. "This is substantially higher than the recoveries that we thought possible back in 2011."

Oil and gas sector needs consolidation. Top industry executives said that the oil and gas industry needs to consolidate, in order to reach scale, cut costs and streamline services. "There's a lot of smaller high-quality companies across industry where synergy and value can be captured" by combining, Chesapeake Energy's CEO Doug Lawler said at the Deloitte Oil & Gas Conference, according to S&P Global Platts. "This will be a part of [Chesapeake's] strategy going forward." Other top analysts and executives voiced similar sentiments, an indication that a new wave of M&A activity could be coming.

Economists: Brent to average $76 in 2019. A Reuters survey of 46 economists find an averaged predicted Brent crude price of $76.88 per barrel in 2019. The respondents see Iran sanctions putting a floor beneath oil prices, but weaker demand and a slower global economy putting a cap on prices.

OPEC production hits two-year high. OPEC production rose in October to its highest level in nearly two years. Higher output from Saudi Arabia, Libya and the UAE pushed production up 390,000 bpd compared to September's levels. The figures gave the market confidence OPEC will be able to supply the market as Iranian production goes offline.

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.