November 2018 Monthly Average Crude Oil Price

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The monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil in November slumped by $13.79 (-19.5%), to $56.96 per barrel. The decrease occurred within the context of a stronger U.S. dollar, the lagged impacts of an 1.35 million barrel-per-day (BPD) drop in the amount of oil supplied/demanded during September (to 20.0 million BPD), and a persistent rise in accumulated oil stocks (monthly average: 443 million barrels). 

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From the 3 December 2018 issue of Peak Oil Review:

With U.S. oil production doubling since 2008, America's economy has received a substantial economic boost with the opening of new export markets for U.S.-produced oil and gas. With the help of the additional boost from the recent tax cut, the U.S. economy has been doing well of late, but there are signs that this may be coming to an end.

For the immediate future, much depends on what the OPEC-Russia coalition decides this week. If they can make real production cuts sufficient to reverse the increase in world crude inventories, and force prices higher, then we could see the oil industry continue to grow. However, it was only four years ago when an oil price slide sent crude down from $110 a barrel to $30. This drop in prices led to a reduction of employment in the U.S. oil industry by more than 160,000 workers, bankrupted hundreds of small drillers, and caused problems for the firms supporting the oil industry.

Even though most expect OPEC to cut output this week, a recent Reuters poll shows oil analysts are increasingly pessimistic about the prospect of a price rally next year, when the outlook for demand is uncertain, and supply is growing rapidly.

When the price of crude oil goes through one of its periodic downturns, as it is doing now, it sends a shiver through the oil industry.  History promises that higher prices will return.  Until then, U.S. shale companies are under severe pressure, and big oil companies wonder about the viability of new projects.  There is more to worry them this time: not just the 29% fall in the price of Brent crude but the fear of this bear market enduring. 

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Selected highlights from the 30 November 2018 issue of OilPrice.com’s Oil & Energy Insider include:

Saudi Arabia struggling to convince others to cut. Many members of the OPEC+ coalition want Saudi Arabia to do all of the heavy lifting when it comes to production cuts. After all, they argue, Saudi Arabia was the one that added 1 million barrels per day of fresh supply since May. The Saudis “made this mess. They need to clean it up,” a Middle Eastern oil official told The Wall Street Journal. On Wednesday, Saudi oil minister Khalid al-Falih indicated that Saudi Arabia would not cut alone. 

Trump administration to advance seismic drilling in Atlantic. The Trump administration is taking an early but critical step that could pave the way to oil exploration in the Atlantic Ocean. According to Bloomberg, the National Marine Fisheries Service could allow seismic surveying by five companies in the Atlantic, a precursor to exploration. Seismic testing is essential to exploration, but is highly controversial because of its effect on marine animals such as whales and dolphins.

Russia shows signs of support for OPEC+ cuts. Russia indicated that it could support an OPEC+ production cut next week in Vienna. Russia’s deputy foreign minister said that Russia wants more predictability and “smooth price dynamics.” However, Russia, and its oil firms, are not scared of lower prices. “Russian crude producers will feel comfortable in the $50 to $60 per barrel band,” said Dmitry Marinchenko, oil and gas director at Fitch Ratings.

Permian natural gas prices fall below zero. Natural gas prices at the Waha hub in the Permian fell into negative territory this week amid a worsening glut. A lack of pipelines to ferry away natural gas has some producers essentially paying other companies to take the product. 

Shale industry could cut spending. The U.S. shale industry could cut budgets for the first time since the last downturn years ago. Shale companies are formulating their 2019 budgets right now, and the latest crash in prices could force a more cautious approach. “Something has to give,” Andy McConn, an analyst at Wood Mackenzie, told Bloomberg. “We expected some minor increases in budgets going into next year but now we see risk to the downside, with budgets flat or down year on year.”

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.