September 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 $3.92 (+5.8%), to $71.65 per barrel in September. That increase occurred within the context of an essentially unchanged U.S. dollar (broad trade-weighted index basis -- goods and services), the lagged impacts of July’s decrease of 643,000 barrels-per-day (BPD) in the amount of petroleum products demanded/supplied (to 19.9 million BPD, and a modest retreat in accumulated oil stocks (September average: 418 million barrels).

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From the 27 September 2021 issue of The Energy Bulletin:

Oil: Prices rose for the fifth straight week with the global energy crunch set to boost demand for crude as stockpiles decline from the US to China. Futures in New York gained 2.8% last week. The global benchmark Brent settled at the highest in nearly three years for the second day in a row on Friday. Global onshore crude supplies sank by almost 21 million barrels last week, led by China, while US inventories are near a three-year low.

Royal Dutch Shell, the largest US Gulf of Mexico oil producer, said damage to offshore transfer facilities from Hurricane Ida would cut production until early next year. Shell was the hardest-hit producer from Ida, which tore through the US Gulf of Mexico last month and removed 27 million barrels from the market. The ongoing disruptions have hampered export activity and raised crude prices worldwide, as Asian buyers searched for substitutes for the popular Gulf Mars grade.

Rising US oil consumption and the loss of Gulf of Mexico production this year have led to crude oil inventories at Cushing, Oklahoma, dropping by as much as 42% so far. In the week ending Sept. 10th, crude oil stocks at Cushing were at 32.9 million barrels. Inventories are now 26% lower than usual, based on the previous five-year (2016-2020) average for that time of year. Storage withdrawals from Cushing are consistent with withdrawals from inventories elsewhere in the world, generally indicating that consumption exceeds production.

OPEC: The cartel+ lifted its production in August, but underinvestment and maintenance work has hampered the group's ability to raise production-and supply could be insufficient to meet the world's growing oil demand, Reuters suggested on Tuesday. Global oil demand has recently risen to near-record levels as global activity picks up steam despite the pandemic. In response, OPEC+ agreed to increase oil production starting in August by another 400,000 b/d each month. But not all producers have responded to the call for more barrels. For example, Angola, Nigeria, and Kazakhstan have been unable to lift their oil production to meet the call for more oil.

Shale Oil: US oil production is set to pick up steam again - this time led by little-known privately-owned companies impervious to the demands of the stock market.

Forecasters project that the nation's crude oil output will increase by about 800,000 barrels a day throughout 2022, accelerating sharply from this year and making the US the fastest-growing supplier outside the OPEC+ cartel.

These privately held producers, often smaller companies, will account for more than half of total US output growth next year compared with about 20% in a typical year, said Raoul LeBlanc, an analyst at IHS Markit. The expected output gains come as US oil prices hover at about $70 a barrel, making most shale wells profitable to drill. But many of the largest producers have promised their shareholders they will cap spending on growth after racking up huge losses during a decade-long drilling binge.

Private companies, by contrast, have led the rise in the number of rigs drilling for oil and gas in the US this year, which has more than doubled from this time last year. "The privates are not on board with this whole capital discipline thing. So, for them, this is their window," LeBlanc said. "They're thinking, 'here's my chance, and I'm going to take advantage of it' because they see it as maybe their last, best chance."

The US Energy Information Administration now expects domestic crude oil production to begin to tick higher this autumn after Hurricane Ida disrupted offshore supplies, eventually reaching about 12.2 million b/d by the end of 2022. As a result, spending on drilling and bringing new wells into production in shale patches onshore will rise from about $65 billion in 2021 to more than $80 billion next year as activity picks up, LeBlanc said.

Prognosis: Brent could reach $90 per barrel if the weather in the northern hemisphere turns out to be colder than usual this winter, Goldman Sachs' Jeff Currie said on Wednesday. This is $10 per barrel more than Goldman's current forecast. The call for higher oil prices would come on top of the already too-high natural gas prices, which have sunk some natural gas power providers in Europe. The natural gas situation in Europe will have a spillover effect on the oil market, with natural gas in short supply and crude oil one of the only viable alternatives as wind and solar power prove insufficient at this time. On Tuesday, commodity trader Vitol said that weather was the key to stopping the panic in the market-with warmer winter weather the only hope for falling prices.

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Selected highlights from the 5 October 2021 issue of OilPrice.com’s Intelligence Report include:

The October OPEC+ Ministerial Meeting brought no surprising announcements as all participating states agreed that sticking to the pre-charted course would be in the collective interest of the group. As a consequence, crude prices rose to their highest in 3 years (with WTI moving in close to a 7-year peak) as the December ICE Brent contract was already trading above $82 per barrel. Whilst there remain downside risks that could throw cold water on the price rally, most notably China's power crunch that could bite into October refining rates, it will take several days if not weeks until the market starts noticing those signs.

Phillips 66 Plans to Rebuild Alliance Refinery. Following weeks of speculation about a potential sale or even closure of the Hurricane Ida-damaged Alliance Refinery in Louisiana, US refiner Phillips 66 has reportedly decided to repair and restart the 255,000 bpd capacity refinery.

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.