November 2020 Monthly Average Crude Oil Price

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The monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil ticked up by $1.54 (+3.9%), to $40.94 per barrel in November. That increase occurred within the context of a weaker U.S. dollar (broad trade-weighted index basis -- goods and services), the lagged impacts of a 132,000 barrel-per-day (b/d) decrease in the amount of petroleum products demanded/supplied during September (to 18.3 million b/d, on par with volumes during/after the Great Recession), and little change in accumulated oil stocks (November average: 489 million barrels) -- continuing below the maximum of the five-year average range.

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From the 30 November 2020 issue of The Energy Bulletin:

Prices rose for a fourth straight week, buoyed by optimism over Covid-19 vaccine progress ahead of an OPEC+ ministerial meeting this week. Futures in New York advanced 8 percent last week, despite edging lower on Friday. The shape of the oil futures curve firmed over recent sessions, with some nearer-dated futures contracts rising above later-dated ones. It's a sign of how the market has dramatically repriced the increased likelihood of a vaccine rollout jumpstarting more robust demand next year.

OPEC: Formal ministerial meetings were scheduled for Monday and Tuesday this week [postponed to Thursday] when producers decide whether to postpone the planned output hike. OPEC and its Russia-led partners are leaning toward extending oil production cuts for another two to three months, a move they hope will keep markets tight as prices start to recover. Officials said a deal isn't done yet, and issues related to several countries' past compliance could still prevent an agreement when the group meets this week.

World oil prices are now near $50 a barrel, up 25 percent this month and Chinese and Asian demand has recovered as Covid-19 eases there. Promising results for several Western vaccines have lifted stock markets and crude prices. Taken together, these developments argue for increasing production. Some OPEC members like the UAE, Iraq, and Nigeria have expressed misgivings over maintaining the status quo.

Prognosis: [The] meeting of OPEC and its partners, at which the alliance will decide on production levels from January, will determine the market's direction in the short term. Over the longer haul, uncertainties remain. Covid-19 vaccines could boost global economic prospects and bolster demand for oil in 2021 if there is widespread distribution of the shots. However, the current coronavirus cases in both the U.S. and Europe could prompt new travel and business restrictions, weighing on demand.

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Selected highlights from the 1 December 2020 issue of OilPrice.com’s Intelligence Report include:

OPEC+ delays meeting as talks continue. OPEC+ postponed a decision on its next steps until Thursday after talks proved trickier than expected. Analysts expected the group to extend its current agreement by three months or so, rather than allowing the cuts to taper beginning in January. However, Reuters reports that some members are itching to increase production. Russia has suggested easing by 0.5 mb/d each month beginning in January. At the same time, the UAE is uncomfortable with low compliance levels of other members.

Exxon takes historic $20 billion writedown. ExxonMobil (NYSE: XOM) said that it would write down as much as $17 to $20 billion in the fourth quarter, the largest writedown in modern history. The impairment was concentrated in natural gas assets across a wide geographic area: Appalachia, Rocky Mountains, Oklahoma, Texas, Louisiana, along with Western Canada and Argentina. The move dates back to a major blunder when Exxon purchased XTO Energy for $35 billion in 2010, an acquisition widely seen as a costly mistake.

U.S. shale is broken. After many ups and downs, most analysts see U.S. shale production remaining flat for years, handing leverage back to OPEC+. "I see no more growth until 2022, 2023, and it will be very, very light in regard to the U.S. shale industry ever-growing again," said Pioneer (NYSE: PXD) CEO Scott Sheffield.

Shale drillers shift to gas. Higher natural gas prices and subdued crude prices have drillers shifting towards gas, a turnaround from much of the past decade. EOG Resources (NYSE: EOG) and Continental Resources (NYSE: CLR) have both increased their focus on gas, for example.

Oil markets face a 200-million-barrel glut in 2021. Rystad Energy's balances show that should OPEC+ fail to amend its existing deal and increase its production, the world in January will face its biggest monthly glut since April 2020 with an average daily surplus of 3.1 million barrels for the month.

Bank of America rules out Arctic financing. Bank of America joined other major banks in ruling out funding for new oil and gas drilling in the Arctic. Goldman Sachs, Morgan Stanley, Wells Fargo, and Citi have all previously done the same.

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.