January 2021 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 $4.98 (+10.6%), to $52.0 per barrel in January. 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 78,000 barrel-per-day (b/d) increase in the amount of petroleum products demanded/supplied during November (to 18.7 million b/d, on par with volumes during/after the Great Recession), and a modest decline in accumulated oil stocks (January average: 481 million barrels).

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From the 1 February 2021 issue of The Energy Bulletin:

As has become routine, much of the news impacting oil prices has to do with the coronavirus and vaccine programs’ pace. For the immediate future, lockdowns in many regions will limit demand.  The more contagious coronavirus variant identified in South Africa has reached the US, raising worries that more outbreaks may be ahead.

US commercial crude oil inventories moved sharply lower the week before last as exports surged and imports tested multi-month lows. Stocks declined 9.91 million barrels during the week ended Jan. 22nd to a 10-month low of 476.6 m/b. It was the largest one-week draw since last July and left inventories just 6% above the five-year average, the narrowest supply overhang since early April. All regions outside the Rockies saw crude inventory draws last week, but the bulk of the decline was concentrated on the US Gulf Coast, where stocks fell 6.43 m/b.

The barrage of Presidential executive orders related to climate and the oil industry has sent oil producers’ stocks tumbling and raised blood pressure across the industry. “In the first couple of days of the new administration, they are taking actions that will harm the economy and cost Americans their jobs,” said the senior vice president of policy for the American Petroleum Institute. “We’re concerned, and everyone in the country should be concerned.”

President Biden’s new moratorium on oil and gas lease sales will indefinitely postpone all lease sales previously scheduled under the Trump administration for both onshore acreage and parcels in the deepwater Gulf of Mexico. The executive order postpones — and potentially cancels — a March lease sale for the deepwater Gulf and March sales in Colorado, Utah, Wyoming, and Montana. The charge also applies to an April lease sale in New Mexico, which is the state potentially most impacted by the moratorium.

The moratorium, which has no time limit, will continue during a new review of fossil fuel leasing and permitting. The ban on oil and gas drilling across federal lands and waters will exclude tribal lands. Republican senators from oil-producing states introduced legislation on Thursday to block the Biden administration’s order pausing new oil and gas leasing on federal lands.

The temporary halt leaves the vast majority of US crude production untouched. Should the halt announced Wednesday become permanent, the US would stand to lose as much as 200,000 b/d of production by the end of this decade, according to Rystad Energy. It’s a small fraction of America’s roughly 11 million b/d in output. “The region that would bear the brunt of this ban are the deep waters of the Gulf of Mexico since the government entirely owns it.” It would mean a 40% output drop for the Gulf by 2030.

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Selected highlights from the 29 January 2021 issue of OilPrice.com’s Oil & Energy Insider include:

Biden EV order faces questions. President Biden ordered the U.S. government to switch over its 645,000-vehicle fleet to EVs made with union labor and at least 50% American-made parts. But no such EV exists yet. Tesla is not unionized and GM uses three-quarters imported parts. The EV order may be possible to achieve over time, but will not happen overnight, experts say.

Dakota Access loses court case, fate could be decided soon. A U.S. appeals court upheld a lower court decision to throw out a key federal permit this week, ordering an environmental review. The decision is a major blow to the pipeline and while the court allowed the pipeline to continue to operate, the decision also leaves the pipeline’s fate in the hands of the Army Corps of Engineers.

Shale promises capital discipline. As oil prices stabilize in the $50s, shale drillers are promising restraint, although many analysts question how sincere that mantra is. Rystad predicts an increase in drilling could see an extra 310,000 bpd return to the market by the end of the year. But Morgan Stanley says that of the companies they watch, on average they are pledging to reinvest no more than 80% of cash flow, suggesting an increased focus on returning cash to shareholders. 

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.