October 2019 Monthly Average Crude Oil Price

Click image for larger view

The monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil nudged down by $2.98 (-5.2%), to $53.96 per barrel in October. The decrease occurred within the context of a modestly weaker U.S. dollar (broad trade-weighted index basis, which now accounts for the value of both goods and services), the lagged impacts of a 320,000 barrel-per-day (BPD) rise in the amount of petroleum products supplied during August (to 21.6 million BPD), and a moderate rise in accumulated oil stocks (October average: 439 million barrels). 

Click image for larger view

From the 4 November 2019 issue of Peak Oil Review:

“OPEC's oil production jumped by 690,000 BPD from September to 29.59 million BPD in October, as the Saudis saw their production surge by 850,000 BPD, to 9.9 million, according to the Reuters survey.  The Saudis are now pumping as much oil as they did before the attack in mid-September.  OPEC+ will, at the very least, extend production curbs beyond the March 2020 deadline.  Analysts believe any increase in OPEC+'s production in the immediate future would send oil prices "into the abyss" and is not in line with the group's "long-held commitment to stabilize the oil market."

“The course of U.S. shale oil production over the next five months will be important to what OPEC+ does this winter.  Russia's Deputy Energy Minister Sorokin said last week that Russia is monitoring the growth in U.S. shale oil production and that there has been a significant slowdown over the past three-four months.  He noted that drilling efficiency has stalled over the past two years.

“The Trump administration, however, still sees the U.S. shale oil boom barreling ahead, despite slowing production, falling rig counts, and investment in new production sagging.  Energy Secretary Perry said last week that U.S. shale production has turned the world "on its head," and Goldman Sachs Group Inc. is "off a bit" in a report last week saying that the bonanza is fading.

“The downturn in shale drilling has been so steep and fast that oilfield companies are taking the unprecedented step of scrapping entire fleets of fracking equipment.  With almost half of U.S. fracking machinery expected to be sitting idle within weeks, shale drillers are retiring truck-mounted pumping units and other equipment used to fracture shale rock.  In previous market slumps, frackers parked unused equipment to await a revival in demand; this time it's different, gear is being stripped down for parts or sold for scrap.

“As oil prices remain low, talk has begun about the outlook for Texas' economy.  According to a recent Reuters report, smaller independent oil and gas producers in the state are struggling to get loans from banks as the latter become increasingly wary of the ability of the borrowers to return the money when the time comes.  Jobs in the Texas oil and gas industry are falling, too. The Houston Business Journal reported this month that September saw a 1,100 decline in the number of jobs in the mining and logging sector-the category that includes oil and gas jobs.

“Conventional oil and gas discoveries have fallen since the shale boom and the subsequent oil price collapse.  In fact, they've fallen to their lowest level in 70 years.  This year has seen new discoveries of nearly 8 billion barrels of oil "equivalent" (which includes natural gas) compared to 10 billion barrels of oil equivalent discovered last year.  But what's most striking is that discoveries aren't even close to keeping pace with the loss of conventional resources.  According to Rystad, the current resource replacement ratio for conventional oil is only 16 percent.  In other words, only one barrel out of every six consumed is being replaced with new resources.

“Given that the world currently consumes some 35 billion barrels of oil per year, it is difficult to understand the optimism for the future of the oil industry.” 

Click image for larger view

Selected highlights from the 1 November 2019 issue of OilPrice.com’s Oil & Energy Insider include:

Trade war hurdles remain despite soothing words. President Trump has raised expectations that a partial trade deal is all but a done deal, but hurdles remain. Reuters reports that Trump’s insistence on China buying as much as $50 billion in farm products – more than twice as much as China bought in the year before the trade war – is a sticking point. Bloomberg also reported that Chinese officials are not optimistic about a comprehensive deal, as they do not trust Trump to stick to the terms of any agreement. Still, press reports suggest there is momentum in the near-term for a partial deal.

Trump admin may back off auto freeze. The Wall Street Journal reports that the Trump administration is reconsidering its freeze on fuel economy standards, and instead might opt for 1.5 percent annual increases, putting it closer to the Obama-era proposal.

Oilfield services scrap equipment. Bloomberg reports that the surplus of fracking equipment is being stripped for parts and sold off, rather than merely being idled. The industry is expected to use around 13 million horsepower at the end of 2019, out of 25 million horsepower available. Bloomberg reports that around 2.2 million horsepower – about 10 percent of industry capacity – is headed for the scrap heap.

China manufacturing data contracts sharply. Factory data from China showed a sixth consecutive month of contraction, and activity fell faster than expected. “We expect the official manufacturing PMI to remain sluggish in coming months, the growth slowdown could gather pace, and markets could become more volatile in coming months,” said analysts from Nomura in a note. New data on Friday, however, was more positive.

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.