March 2019 Monthly Average Crude Oil Price

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The monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil posted a third month of gains when rising by $3.20 (+5.8%), to $58.15 per barrel in March. The increase occurred within the context of a stronger U.S. dollar, the lagged impacts of a 27,000 barrel-per-day (BPD) drop in the amount of oil supplied/demanded during January (to 20.5 million BPD), and a minimal decline in accumulated oil stocks (monthly average: 447 million barrels). 

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From the 1 April 2019 issue of Peak Oil Review:

Prices have climbed steadily for the last three months closing on Friday above $60 a barrel in New York and $67 in London.  The combination of slowing U.S. shale oil drilling and the Venezuela, Iran, and the OPEC+ situations continue to outweigh the bad economic news that may someday lower demand.  The situation in Venezuela gets worse every day, and it seems likely that the country will see a significant drop in production and exports during March.

On Friday, the EIA reported that the average daily U.S. crude production slipped during January for the first time in nearly six months falling to 11.871 million BPD from 11.961 in December.  This number is likely to be more accurate than the weekly estimates that are based more on trends than actual production numbers.  Given the severe weather across North Dakota during the last two months, it seems unlikely there will be an increase in Bakken production until spring.

The U.S. oil rig count continues to slide, falling from 885 on January 1st to 816 last week. This situation suggests that we may not see another 1.8 million BPD gain in shale oil production like happened in 2018 despite all the hype about the smarter and wealthier international oil companies taking over the Permian Basin from smaller, less efficient, drillers.

U.S. and Brent crude oil futures touched a new high for the year this week.  While the price increase is underpinned by the fundamentals of the oil market, optimism is increasing that a settlement of the US-China trade dispute is in the offing and that the prospects for a recession later this year are receding.

It should be noted, however, that along with higher crude prices, U.S. gasoline prices have been increasing at a steady pace -- up 28 cents a gallon in the last month. Prices on the U.S. West Coast are already over $3 a gallon and Michigan, Illinois and Pennsylvania are in the vicinity of $2.80. While nobody is forecasting a return to $4 a gallon gasoline in the U.S. in the immediate future, California is already at $3.61 for regular and is approaching the point where discretionary driving starts to slow.

The OPEC Production Cut.  Saudi Arabia is having a hard time convincing Russia to stay much longer in an OPEC+ pact cutting oil supply, and Moscow may agree only to a three-month extension.  Russian Energy Minister Novak told the Saudis last month that he is under pressure to end the cuts but would agree to extend the cuts to the end of September.  Moscow has always been skeptical of the cuts, given that the collapse of Venezuela amounts to nearly the same thing without harming the major oil exporters. Last November, Russia agreed to go along with the deal but warned that it would not be able to cut 50,000-60,000 BPD until spring. This situation left the Saudis and the other Gulf Arabs to shoulder the bulk of the cut. 

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Selected highlights from the 29 March 2019 issue of OilPrice.com’s Oil & Energy Insider include:

While the breakneck growth of U.S. crude production has slowed considerably since January, domestic crude production continues to expand (albeit slowly) and will likely continue to grow thanks to tight oil production, according to projections from the U.S. Energy Information Administration (EIA). Meanwhile, overseas, Venezuela continues to face rolling blackouts and plunging oil production, Trump took to Twitter to take on OPEC, and international oil prices have remained weak in the wake last week's "flurry of bearish news."

Continued blackouts in Venezuela threaten oil production. With its second bout of nationwide blackouts in less than a month, completely halting operations at the nation's main oil export terminal as well as its heavy crude processing complex. While Maduro continues to blame U.S. sanctions for the power outages, the White House maintains that the matters are entirely unrelated. OPEC will likely chalk up the blow to Venezuela's oil production to a success, with every dip in the global oil inventory driving up prices.

Signs point to recession...but are oil markets taking heed? With the U.S. Federal Reserve, joining the IMF, the World Bank, and the OECD in making public statements about an impending economic slowdown, what are oil markets doing to prepare? Not much, apparently. The U.S. continues to push for higher oil production as U.S. stock and oil markets remain robust and bullish, but reality bites, and according to experts both "can be expected to correct."

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.