July 2021 Monthly Average Crude Oil Price

Click image for larger view

The monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil nudged up by $1.11 (+1.6%), to $72.49 per barrel in July. That rise occurred within the context of a stronger U.S. dollar (broad trade-weighted index basis -- goods and services), the lagged impacts of May’s increase of 635,000 barrels-per-day (BPD) in the amount of petroleum products demanded/supplied (to 20.1 million BPD, and a further retreat in accumulated oil stocks (July average: 440 million barrels).

Click image for larger view

From the 26 July 2021 issue of The Energy Bulletin:

OPEC. The cartel and its allies have set aside their differences for now, with their deal to hike crude production, but the coalition’s internal battles for market share are just getting started. After two and a half weeks of wrangling, the OPEC+ alliance on July 18th agreed to pump 400,000 b/d more crude every month to cool off a potentially overheating market. The cartel also grants five countries – Saudi Arabia, Russia, the UAE, Iraq, and Kuwait – higher output targets starting in May 2022. It is a near-term win for the group and looks set to exacerbate the divide between its richer and poorer members. Some will struggle to produce at their quotas.

The market is very tight, and a supply increase of 400,000 b/d will turn out to be a pittance, according to a senior analyst. On the other hand, he states that demand is significantly higher, despite the Covid-19 pandemic exploding in parts of the world, and oil prices are likely to climb much further by the time summer is over. Goldman Sachs said that the deal would support its view on oil while cautioning that near-term prices may gyrate amid concern about the delta variant. In addition, the planned output increase was moderate and would keep the market in deficit.

The deal proves that OPEC+ is very much intact and on course to manage a controlled and cautious tapering of cuts to avoid even the slightest risk of tipping the market into oversupply, said the founder of Vanda Insights in Singapore. However, quota-busting is likely to remain a thorn in the alliance’s side, especially when members start experiencing restraint fatigue as markets demand more oil, she added.

Shale Oil. Unlike previous boom-and-bust cycles, the shale oil industry has held off on boosting production and has focused on strengthening balance sheets, repaying loans, and rewarding shareholders. As a result of the commodity price rally this year and the discipline in capital spending, the industry is now financially more robust. Bankruptcies have been declined in recent months, and the energy loan default rate has dropped to the lowest level since the oil market crashed in March last year. In addition, low interest rates have prompted many US oil and gas firms to raise new debt, most of which goes to repaying existing liabilities, not to drill more wells.

Click image for larger view

Selected highlights from the 30 July 2021 issue of OilPrice.com’s Oil & Energy Insider include:

Crude prices drew hefty support [during the last week of July] from U.S. inventory dynamics, with commercial stocks falling to their lowest since January 2020 and indications that the tightening is set to continue. Concurrently, the markets have seemingly got accustomed to the idea that there will not be any Iranian cliff-hanger as President-elect Raisi is to be sworn into office next week, mitigating erstwhile concerns that Tehran might flood the market with incremental barrels. COVID headwinds persist, however, as several European countries see rising Delta variant cases.

ADNOC to Ease October 2021 production cuts. The UAE state oil company ADNOC informed its term buyers that it would ease its export nomination cuts for October 2021, bringing back 10 percentage points worth of output compared to September, a clear indication that the Emirates remains earnest in its production ramp-up drive.

European Majors Leave Venezuela. France’s TotalEnergies and Norway’s Equinor have quit their Petrocedeño joint venture, transferring their stakes to a subsidiary of PDVSA. The JV manages the Juni oil field in the Orinoco Belt and a 180,000 BPD heavy crude upgrader -- this was used by both companies, arguing that developing the heavy barrels is incompatible with their low-carbon strategies.

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.