August 2020 Monthly Average Crude Oil Price

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Gains to the monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil decelerated further when rising by $1.63 (+4.0%), to $42.34 per barrel in August. The August increase occurred within the context of a weaker U.S. dollar (broad trade-weighted index basis -- goods and services), the lagged impacts of a 1.3 million barrel-per-day (BPD) jump in the amount of petroleum products demanded/supplied during June (to 17.4 million BPD, on par with volumes previously seen in mid-1995), and a drop-off in accumulated oil stocks (August average: 508 million barrels) -- although still above the five-year average maximum.

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From the 31 August 2020 issue of The Energy Bulletin:

[Daily] oil prices have failed to break out of their narrow trading ranges over the past few weeks despite a flurry of positive news including declining inventories and reports that OPEC+ producers are mostly sticking to their pledged cuts. After a brief, half-hearted rally, oil prices have dropped back to an average trading range in the low-$40s after the Labor Department reported that US weekly jobless claims totaled 1.106 million. This comes just a week after the tally dipped below the 1M mark for the first time since March, thus raising serious doubts about the economic recovery's sustainability.

According to IHS Markit's latest forecast, post-covid-19 global oil demand growth -- on which the future of the oil industry hinges -- is expected to taper off. This report joins the growing chorus of pessimistic forecasts looking at the future of global oil demand growth, which has been pushed down due to the lockdowns and much less travel.

Global oil demand is currently sitting at 89% of pre-pandemic levels, IHS Markit said. It is expected to rise a bit and level off at between 92% and 95% of the demand pre-pandemic. Therefore, oil demand growth will plateau through Q1 2021 as fewer people are commuting to work, and as air travel slumps considerably amid remaining travel restrictions and people's fear of air travel which forces many people together in confined spaces. So far in 2020, global jet fuel demand and gasoline have rebounded from April lows, but global jet fuel demand is still off 50% year to date. US gasoline demand is down by a lesser amount, but still significant, at around 20%.

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

Oil prices retreated in the wake of Hurricane Laura, which led to much less destruction than the market had anticipated. That leaves the oil price dynamic little changed from the past two months – WTI and Brent are stuck in familiar territory between $42 and $45.

Gulf of Mexico energy industry largely dodges Hurricane Laura. The concentration of energy assets along the Texas and Louisiana coast more or less avoided the worst-case scenario from Hurricane Laura. “The damage is not as bad as anticipated, which is creating more sell pressure along the energy complex,” said Phil Flynn, senior market analyst at Price Futures Group. More than 80% of oil output in the Gulf of Mexico and almost 3 million barrels a day of refining capacity had been shut ahead of the storm, most of which should come back online fairly quickly.

Report: Oil majors can’t afford dividends. The five supermajors -- ExxonMobil, Royal Dutch Shell, BP, Chevron, and Total -- collectively paid $16.9 billion more to shareholders than they generated from their core business operations, according to an IEEFA report. They plugged the gap through asset sales and debt. ExxonMobil, which is being removed from the Dow Jones Industrial Average, posted a negative free cash flow of $4.4 billion and paid out $8.1 billion to shareholders. Collectively, the majors added $50 billion in debt in the second quarter.

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.