October 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 $9.83 (+13.7%), to $81.48 per barrel in October. That increase occurred within the context of a marginally stronger U.S. dollar (broad trade-weighted index basis -- goods and services), the lagged impacts of August’s increase of 617,000 barrels-per-day (BPD) in the amount of petroleum products demanded/supplied (to 20.5 million BPD, and an advance in accumulated oil stocks (October average: 428 million barrels).

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From the 1 November 2021 issue of The Energy Bulletin:

Oil: Futures rose above $84 a barrel on Friday, within sight of a multi-year high hit last week. Expectations that OPEC and its allies will keep supply tight countered a weekly rise in US inventories and the prospect of more Iranian exports. Oil posted a monthly gain for October of 11% on signs that consumption is outpacing supply and declining stockpiles. New York futures closed at $83.57 and London at $83.72. Last month’s advance shows the impact of an ongoing shortage of natural gas, which has boosted demand for oil products. At the same time, rising margins signal that crude consumption will remain strong as refiners continue to process more oil to meet demand. That could mean that global oil stockpiles will continue to fall in the coming months.

Algeria said on Thursday a crude output increase by OPEC and its allies in December should not exceed 400,000 b/d because of risks. Fuel consumption is soaring around the globe, and with millions of barrels of daily refining capacity offline, refiners still in the game are reaping some of their fattest margins in years. Globally, about 2.3 million b/d of refining capacity was shut down during the pandemic. Another 1 million barrels are likely to be shut down in the next year, Facts Global Energy analyst Steve Sawyer said. That’s just as demand is returning to pre-pandemic levels. Fuel demand is soaring, with cars jamming roads again and gas-to-oil switching gaining speed ahead of winter.

Crude oil tanks at the Cushing, Oklahoma storage hub are more depleted than they have been in the last three years, and prices of further dated oil contracts suggest they will stay lower for months. US demand for crude from refiners making gasoline and diesel has surged as the economy has recovered from the worst of the pandemic. In addition, demand across the globe means other countries have looked to the US for crude, also boosting draws out of Cushing. Analysts expect the draw on inventories to continue in the short term, which could further increase US crude prices that have already climbed by about 25% in the last two months.

The scarcity premium embedded in the structure of Brent crude oil futures widened to the most since 2013 last week, a sign of the tight market underpinning oil’s rally that pundits increasingly predict will push the market to $100 a barrel.  Saudi Aramco said oil-output capacity worldwide is dropping quickly, and companies need to invest more in production. It’s a “huge concern,” Chief Executive Officer Amin Nasser said in an interview. “If there’s aviation pick up next year, that spare capacity will be depleted,” he said. “It’s now getting to a situation where there’s a limited supply — whatever is left that’s spare is declining rapidly.” Several oil and gas traders have criticized governments and climate activists for calling on companies to stop investing.

OPEC: An OPEC+ committee trimmed its forecasts for global oil demand growth this year to 5.7 million b/d from 5.8 million despite a continuing strong recovery in consumption. The Joint Technical Committee, which met on Thursday, left its demand growth forecast for next year steady at 4.2 million b/d. The source said the revision for 2021 was “nothing to worry about” as it updated actual data and rounding. Ministers from the OPEC, Russia, and their allies meet on Nov. 4th to decide output policy.

OPEC’s claim that there is no shortage in the physical oil market appears at odds with the upward trajectory of the futures market. Varying appetites for different quality and regional crudes is the missing link. While the level of buying interest in Middle East barrels appears to better match OPEC’s strategy to steadily bring crude back to the market, the bullish narrative that has pushed Brent above $85 is led by the appetite for sweeter grades, according to market participants and analysts.

Shale Oil: After posting their biggest quarterly profits in years, Exxon Mobil and Chevron disclosed plans to expand drilling in the Permian Basin. Latecomers to the West Texas shale fields, both last year slashed shale production and cut drilling as oil demand tanked. They could soon add two rigs each and rev up output, executives said on earnings calls. Exxon last quarter produced about 500,000 b/d of oil and gas from the Permian Basin using nine drilling rigs. The company’s third-quarter Permian output rose nearly 30% above the prior period. Chevron plans to add two drilling rigs and two crews to complete new wells in the Permian this quarter.

Prognosis: Energy transition and peak demand predictions have spooked investors in oil, putting the prospect of peak production sooner than anticipated, accompanied by wild price spikes. Key climate talks are taking place, with fossil fuel in policy-makers’ crosshairs. But as it stands now, mobility curbs that hollowed out both spending on upstream oil projects and oil end-use may already be set to rein in the growth of both supply and demand permanently. “On current trends, global oil supply is likely to peak even earlier than demand,” the research department of bank Morgan Stanley said in a note last week.

Top US oil firms are doubling down on drilling, deepening a divide with European rivals on the outlook for renewables, and winning support from big investors who do not expect the stateside companies to invest in wind and solar. Among a dozen US fund managers contacted by Reuters from companies overseeing about $7 trillion in assets, most said they prefer oil firms to generate returns from businesses they know best and give shareholders cash to make their renewable bets.

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

The recent remarkable energy rally calmed down this week, with gas, coal, and oil prices all posting a weekly loss. In the case of crude, it was the first weekly decline in two months. Whilst oil companies were buoyed by an overwhelmingly positive string of Q3 results (most notably Chevron reporting its highest quarterly profit in 8 years), the case for $85+crude prices has weakened over this week. Iranian talks are back on the geopolitical agenda in November, crude inventories in the US increased once again, and geopolitical uncertainty threatens Bosnia, Libya, and Sudan.

OPEC+ to Stick to Supply Discipline. The OPEC+ Joint Technical Committee meeting this week largely agreed that the oil group should maintain its 400,000 b/d monthly supply increases, despite importers' calls for more barrels.

Iran Nuclear Talks Will Restart Next Month. Top negotiators from Iran and the European Union have agreed to restart nuclear talks by the end of November following a three-month hiatus triggered by the election of President Ebrahim Raisi.

Windfall Profits Might Trigger Wave of Share Buybacks. Buoyed by Q3 results coming in at a profit of $6.75 billion, US major ExxonMobil (NYSE:XOM) will spend some $10 billion on share buybacks thanks to windfall profits from high oil and gas prices this year, a practice it suspended in 2016.

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.