March 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 $3.29 (+5.6%), to $62.33 per barrel in March. That increase occurred within the context of a stronger U.S. dollar (broad trade-weighted index basis -- goods and services), the lagged impacts of a 201,000 barrel-per-day (BPD) decrease in the amount of petroleum products demanded/supplied during January (to 18.6 million BPD, on par with volumes during/after the Great Recession), and a plateauing of accumulated oil stocks (March average: 501 million barrels).

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From the 5 April 2021 issue of The Energy Bulletin:

Shale Oil: Drilling expanded in the U.S. at its fastest pace since the start of the pandemic amid rising prices and an increasingly optimistic demand outlook. According to Baker Hughes, the total number of rigs drilling for oil across the country rose by 13 last week to 337, the largest jump since January 2020. Explorers are gaining confidence this year's 25% run-up in prices is here to stay after the U.S. benchmark crude, West Texas Intermediate, averaged more than $60 a barrel in March -- the first calendar month above that threshold since May 2019.

Optimism has also been buoyed by expectations that global crude supplies won't grow fast enough to satisfy demand as Covid-19 vaccinations proliferate and more economies reopen. Despite the recent jump, the oil rig count stands at about half of what it was when the pandemic started. Even the agreement by OPEC+ producers [to increase output] won't head off that tightening of supplies, according to Jeff Currie, Goldman Sachs Group Inc.'s head of commodities research.

Exxon Mobil and Chevron have scaled back activity dramatically in the Permian Basin, where just a year ago, the two companies were dominating in the high-desert oil field. The cautious approach of the two largest U.S. oil companies is a significant reason domestic oil production has been slow to rebound. Shale oil production now is about 11 million BPD, down sharply from the record of nearly 13 million hit in late 2019. Exxon and Chevron's share of drilling activity in the Permian Basin oil field in Texas and New Mexico dropped to less than 5% last month.

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Selected highlights from the 2 April 2021 issue of OilPrice.com’s Intelligence Report include:

Oil prices climbed on Thursday despite the surprise decision by OPEC+ to increase production, a decision that has been seen as promising for demand.

Oil prices rose despite OPEC+'s decision to increase production. In fact, rather than a bearish move, investors interpreted the decision as a vote of confidence in demand. "The [supply] deficit that we're already in is likely to accelerate," Jeff Currie, head of commodities research at Goldman Sachs Group Inc., said in a Bloomberg Television interview

OPEC+ agrees to gradually increase production. OPEC+ decided to add more than 2 million BPD over the next few months, betting on rising demand. The deal calls for a 350,000-BPD increase in May, followed by the same amount in June, and then by 450,000 BPD in July. At the same time, Saudi Arabia will ease its voluntary 1 million BPD cuts by July. OPEC+ surprised markets last time around by maintaining cuts, this time they surprised in the other direction after analysts expected no change.

Shale output to erode. U.S. shale production is set to decline through at least 2022, according to BNEF. By the end of the year, the industry could lose another 485,000 BPD. "It could be a while before U.S. oil companies feel comfortable growing production again," BNEF analyst Tai Liu said in a note.

Europe lockdown to hit demand. Oil demand will take a hit from new lockdowns in Europe and slow vaccinations. Rystad Energy says it could prevent 1 million BPD of demand from coming back this year.

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.