January 2020 Monthly Average Crude Oil Price

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The monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil fell by $2.30 (-3.8%), to $57.52 per barrel in January. The decrease occurred within the context of a marginally weaker U.S. dollar (broad trade-weighted index basis -- goods and services), the lagged impacts of a 182,000 barrel-per-day (BPD) decline in the amount of petroleum products supplied during November (to 20.8 million BPD), and a sideways move in accumulated oil stocks (January average: 431 million barrels). 

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From the 3 February 2020 issue of Peak Oil Review:

“Oil prices fell for the fourth straight week on mounting worries about economic damage from the coronavirus that has spread from China to around 20 countries.  Futures closed the month down about $10 a barrel since the beginning of the year, seeing the biggest January loss since 1991.  New York futures settled at $51.56 and London at $56.62.  The rapid price decline is causing much consternation with OPEC+ as some commentators are talking about $40 oil if the virus situation gets much worse.

“Global oil prices rallied at the end of last year due to announcements of cuts in production, followed by a boost in early January due to tensions in the Middle East.  But Brent crude is now down almost 17% from its early January peak, while U.S. natural gas prices are also under pressure due to a mild winter.  That is prompting a lot of investors to consider more in-depth, longer-term challenges for producers and refiners.  Some analysts warn that too many companies in the oil and gas sector have unsustainable balance sheets, weighed down by too much debt.

“The coronavirus-triggered fall in crude oil prices over the last few weeks has shaken some OPEC countries, including Saudi Arabia, to the realization that waiting until March 5-6, as scheduled, to potentially announce deeper production cuts may be too late.  OPEC’s core Middle East members typically announce how they have allocated their crude exports to customers between the 10th and 15th of each month.  March loading programs and allocations have already been set, so any OPEC+ decision would affect April shipments at the earliest.  Holding the meeting on its scheduled date of March 5-6 would push any changes to the May loading program.

“Beyond the physical market practicalities, the politics of agreeing on deeper cuts could be complicated.  OPEC and its 10 allies are one month into their latest production accord, which commits them to a 1.7 million BPD cut through the end of March.  The deal, signed at a highly fractious meeting in December 2019, saw Angola walk out of the talks at one point, and Iraq and Russia play hardball in negotiating their new quotas.  “Saudi Arabia, as expected, is leading by example, but should other producers fail to pull their weight or offer further adjustments, does the kingdom act unilaterally if the coronavirus impact escalates and spirals from here on out?” said an analyst with Medley Global Advisors.

“Even with Libya’s oil production plummeting by nearly 1 million BPD due to a port blockade, oil prices have seen downward pressure over the past week as fears of oil demand destruction currently outweigh supply outages.  Last week’s EIA inventory report was not supportive, reporting a 3.5 million build during the seven days to January 4th.  According to oil market analysts, until the impact of the Wuhan virus on the Chinese economy and oil demand becomes clearer, market participants will continue to be spooked by the specter of waning oil demand during the season when demand is weakest.

“The Phase One trade deal between the U.S. and China may end up being exports on paper only—at least as far as energy is concerned.  Analysts concur that the Chinese promise to buy an additional $52.4 billion worth of U.S. energy products in 2020 and 2021 on top of the 2017 levels is most likely unachievable, even if China intends to fulfill all its pledges in the deal.  With the coronavirus epidemic leaving a large share of Chinese industry, retail, and non-essential transportation shut down for an indefinite period, demand for oil in China and even around the world is bound to slow significantly.” 

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Selected highlights from the 31 January 2020 issue of OilPrice.com’s Oil & Energy Insider include:

Oil posted its largest monthly loss since May 2019, as fears of the coronavirus continue to rise. The 15% price decline is also the worst January performance since 1991, according to Bloomberg. The oil market is “troubled by both rising demand worries and rising fuel stocks,” said Ole Sloth Hansen, head of commodities strategy at Saxo Bank A/S in Copenhagen. “It’s going to take a firm commitment by OPEC+, or rising geopolitical tensions, to achieve a sustained recovery.”

Bernstein: Chinese oil demand growth at just 100,000 BPD. China’s oil demand could grow at just 100,000 BPD this year due to the coronavirus, according to Bernstein. That would make it the slowest expansion in consumption in nearly 20 years. The firm previously predicted 350,000 BPD of growth.

Investors warn industry not to move on Trump’s deregulation. A group of 58 companies, including institutional investors, representing around $113 billion in assets, warned the energy, timber and mining industries not to move aggressively to take advantage of the Trump administration’s wide-ranging deregulatory campaign. The investors said that doing so would put investors at “significant risk of public backlash and stranded assets, should these actions be legally challenged or protections be restored by the courts or by future administrations.”

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.