February 2020 Monthly Average Crude Oil Price

Click image for larger view

The monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil dropped by $7.14 (-12.4%), to $50.54 per barrel in February. The decrease occurred within the context of a modestly stronger U.S. dollar (broad trade-weighted index basis -- goods and services), the lagged impacts of a 300,000 barrel-per-day (BPD) decline in the amount of petroleum products supplied during December (to 20.3 million BPD), and a sideways move in accumulated oil stocks (February average: 444 million barrels). 

Click image for larger view

From the 2 March 2020 issue of Peak Oil Review:

“As the coronavirus epidemic spreads to some 60 countries, the outlook for the oil industry and, indeed, the global economy is undergoing a sea change.  Oil prices and equities are dropping rapidly as transportation and business activity is already being curtailed in many parts of the world.  Brent futures settled at $50.52 Friday, down $7.98 on the week, and down 22.5 percent since January 20, when the commodities markets began reacting to the virus.  Forecasters are lowering their estimates of how much the growth in oil demand will fall this year, and some are suggesting that demand may even contract.  The IEA has the growth in the need for oil down to 825,000 BPD, but this could turn out to be optimistic. 

“As could be expected, demand for oil by the major Chinese companies CNPC and Sinopec dropped by 15 percentage points since January.  The independent Chinese refiners’ utilization rates have declined by 28 percentage points as compared to operations before the Chinese New Year.  Beijing is making a significant effort to increase its exports of oil products as domestic demand is clearly much lower than usual.

“The implications of what we may be facing are so enormous that if the epidemic spreads widely, the regular forces that drive oil prices and the economy may no longer obtain.  Should the demand for oil fall by millions of barrels per day due to lower global economic activity – a no-longer-unthinkable possibility – then OPEC decisions or central bank moves no longer carry much weight.  Beijing is already trying to buy its way out of the problem by showering money on its economy.

“With U.S. oil prices now down to about $45 a barrel, the prospects for much growth in U.S. shale oil production in the immediate future do not seem good.  Events are overtaking recent forecasts that shale oil will grow by 600,000 to 700,000 BPD in 2020.  Even without the virus phenomenon, some observers are saying that shale oil may be peaking this year because the industry is running out of good places to drill. This, combined with the lack of profitability for shale oil, suggests that the shale oil boom may slow markedly in the next year or so.” 

Click image for larger view

Selected highlights from the 28 February 2020 issue of OilPrice.com’s Oil & Energy Insider include:

Saudi Arabia seeks larger cut. Saudi Arabia is pushing OPEC to increase its production cut to 1 million BPD. Just a few weeks ago, OPEC’s Joint Technical Committee recommended additional cuts of just 600,000 BPD. Riyadh’s proposal would entail Saudi Arabia taking on the bulk of the new cuts. To date, Russia has been reluctant to sign on, but the sharp drop in prices increases pressure on the group.

China’s emissions fall sharply. Amidst an economic lockdown, China’s CO2 emissions have temporarily fallen by roughly a quarter.

BofA: Oil demand and supply to slow through 2025. A report from Bank of America Merrill Lynch sees oil demand slowing in the years ahead as EVs take hold. But it also sees supply growth slowing as U.S. shale slams on the brakes. The bank sees oil bouncing around between $50 and $70 through 2025.

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.