November 2019 Monthly Average Crude Oil Price

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The monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil rose by $3.01 (+5.6%), to $56.97 per barrel in November. The increase occurred within the context of a marginally weaker U.S. dollar (broad trade-weighted index basis, which now accounts for the value of both goods and services), the lagged impacts of an 841,000 barrel-per-day (BPD) drop in the amount of petroleum products supplied during September (to 20.2 million BPD), and a moderate rise in accumulated oil stocks (November average: 449 million barrels). 

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From the 2 December 2019 issue of Peak Oil Review:

OPEC oil output fell in November as Angolan production has slipped due to maintenance and Saudi Arabia kept a lid on supply to support the market before the initial public offering of state-owned Saudi Aramco in December.  Renewal of the OPEC+ production cut is becoming controversial.  At a cartel meeting scheduled for this week, Saudi Arabia will likely tell fellow producers in the pact that the Kingdom would no longer tolerate and compensate for cheating on assigned production quotas according to people with knowledge of the current Saudi position.

While other members in the cartel, notably Iraq and Nigeria, have repeatedly exceeded their respective production caps by more than 100,000 b/d, Saudi Arabia has not only stuck with its share of the cuts, but has also over complied by more than 400,000 b/d-bringing the total reduction of the Kingdom to more than 700,000 b/d in recent months.  The Saudis are pressuring non-compliant cartel members to fall in line with their share of the cuts, instead of pushing aggressively for a deeper overall cut to rebalance the market.  Deeper cuts likely would mean the Saudis would have to take the lion's share of cuts, again.

Moscow too has problems with extending the OPEC+ cut at this time.  Russian oil companies prefer to keep their production restriction quotas until March, when the current OPEC+ cuts expire, and discuss an extension then, signaling that Russian producers don't want deeper cuts or any major changes to the pact at this week's meeting.

Russian energy minister Novak said Thursday that Russia is preparing calculations to exclude condensate from its OPEC+ quota but has so far yet to take a decision.  He said Russian natural gas condensate output would increase as new gas production came on stream, and as it is not exported, it should not be included in the deal.  Under the current OPEC+ agreement, Russia committed to cut around 230,000 b/d from its October 2018 crude and condensate output of 11.42 million b/d.  Compliance has fluctuated significantly this year, with Russia over-complying for a few months in the summer due to the Druzhba pipeline contamination.  Since August it has failed to comply, however.  Novak said last week that producers are planning to comply in November.

The major forecasters see an oil supply surplus next year, but those bearish outlooks largely depend on the growth of US shale oil production in 2020.  Financial struggles in the US shale industry are well-known.  As Bloomberg reported, some drillers have recently seen their credit lines reduced, limiting their access to fresh capital.  Twice a year, in the spring and fall, banks reassess their credit lines to shale drillers and decide how much they will authorize companies to borrow.  This time around is expected to be the first time in roughly three years that lenders tighten up lending capacities.

In 2019 through the third quarter, 32 oil and gas drillers filed for bankruptcy, according to Haynes and Boone.  Since the end of September, several other drillers have filed too, including last Monday, natural gas producer Approach Resources.  This pushed the total number of bankruptcy filings of oil and gas drillers from the beginning of 2015 to over 200. 

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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.