December 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 $2.85 (+5.0%), to $59.82 per barrel in December. 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 a 551,000 barrel-per-day (BPD) rise in the amount of petroleum products supplied during October (to 20.8 million BPD), and a moderate drop in accumulated oil stocks (December average: 442 million barrels). 

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From the 30 December 2019 issue of Peak Oil Review:

Gold prices rose and an index of global equity markets hit an all-time high last week as a year-end rally on Wall Street increased optimism over a U.S.-China trade agreement.  Oil rose to three-month highs, buoyed by a report showing lower U.S. crude inventories, hopes the pending Sino-U.S. trade deal will soon be signed, and efforts by OPEC to curb crude supply.

U.S. unemployment continues to fall, and wages are starting to climb in the wake of labor shortages.  U.S. consumer purchases had a banner year as on-line shopping set a record.  The Chinese cabinet approved a plan to lower tariffs for all trading partners on more than 859 types of products to below the rates that most-favored nations enjoy.

The only dark spot on the horizon for the U.S. economy is the report that U.S. durable goods orders fell in November -- mainly because of a decline in orders for military equipment, which fell 35%.  However, through eleven months this year, durable goods orders were up 0.7% from the same period in 2018.  The Dallas office of the Federal Reserve is worried about the outlook next year for shale oil in its region.

With Brexit coming soon, strikes in France, and Germany's growth slowing, the outlook for the European economy is uncertain.

The prospects for China and its insatiable demand for oil are the great unknown.  China's top five oil suppliers -- Saudi Arabia, Russia, Iraq, Brazil, and Oman -- each delivered record high volumes of crude to China in November, propelling the crude import volume to a new high of 11.18 million BPD.  Much of this crude is going to oil products exports and does not reflect domestic demand. 

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Selected highlights from the 3 January 2020 issue of OilPrice.com’s Oil & Energy Insider include:

Oil prices spiked immediately after the U.S. killed Iranian General Qassem Soleimani on Thursday. Soleimani, as head of the Quds force of the Revolutionary Guard, was a very powerful Iranian official, often likened to a shadow foreign minister. Iran promised “severe retaliation,” and many analysts fear a broader regional war. At a minimum, attacks on U.S. military installations in the Middle East are expected. Brent prices shot up by more than 3%.

U.S. oil workers leaving Iraq. Dozens of workers in the southern oil fields in Iraq are leaving the country and the American embassy urged all U.S. citizens to leave the country immediately. Iraqi officials said production would not be affected.

Supply risks? The big question at this point is how Iran might respond. Rapidan Energy said that the vessels and oil facilities are at risk. “[T]he risk of another major attack against Gulf oil vessels or facilities is now above 50%,” the firm said.

Equity markets sink on attack. Equity markets fell after the attack on Soleimani, interrupting the bullish mood for stocks. The conflict could “dash market hopes for a rebound of the global economy that is still to emerge from under the cloud of the U.S.-China trade war,” Valentin Marinov, head of G-10 currency research at Credit Agricole SA, told Bloomberg. “Risk sentiment should remain fragile also because central banks may be slow to respond or simply no longer have the arsenal to respond in an adequate way.”

$200 billion in shale debt due in next four years. Roughly $200 billion in North American oil and gas debt will mature in the next four years, according to the Wall Street Journal, which includes $41 billion due this year. More than 200 companies have already filed for bankruptcy since 2015, but that number will continue to rise as drillers struggle amid the crushing weight of debt. The huge obligations will force drillers to cut spending, potentially bringing the shale boom to a halt.

Russia’s oil production hits post-Soviet record. Russia appears to be defying the OPEC+ deal, ramping up production to a new post-Soviet record high last year. According to Bloomberg, output exceeded its agreed upon limit in 9 out of 12 months in 2019.

OPEC production declines. OPEC production declined in December to 29.55 million BPD, according to Bloomberg, down 90,000 BPD from a month earlier.

Problems with new IMO compliant fuel. Reuters reports that some routine tests have turned up problems with new low-sulfur fuels. The new IMO rules took effect on January 1, requiring lower sulfur concentrations. The rules are expected to cut 77% of sulfur oxide emissions from the sector. But the implementation could be a bit rocky at first. Marine fuel suppliers “are struggling with sediments,” a specialist told Reuters.

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.