August 2017 Monthly Average Crude Oil Price

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The monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil edged higher again in August, increasing by $1.63 (+3.5%), to $48.26 per barrel. The advance coincided with a weaker U.S. dollar, the lagged impacts of a 455,000 barrel-per-day (BPD) rise in the amount of oil supplied/demanded during June (to 20.5 million BPD), and a continued decline in accumulated oil stocks (to 458 million barrels). 

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Comments from ASPO-USA’s Peak Oil Review Editor Tom Whipple:

As the severe flooding spread further east [during the last week of August], closing down numerous refineries and causing widespread devastation, it is becoming apparent that it will be several weeks before the full impact [of hurricane Harvey] on the U.S. oil industry and indeed global oil markets can be assessed.... At one point…the hurricane shut down a quarter of U.S. refining capacity, some 4.0-4.4 million b/d, but oil production outages mostly from Gulf production came to less than 1 million b/d. With a lot of oil going into storage and refinery demand well below normal, U.S. oil prices have moved very little in the past week, while Brent has remained stronger in anticipation that Europe will be called on to replace the missing US barrels in the next few weeks.

The OPEC Production Cut: Hurricane Harvey has led to some of the biggest disruptions to U.S. energy infrastructure, yet it has failed to boost crude prices. Harvey has seen oil prices edge down as traders have focused more on demand from damaged U.S. refineries than knocked-out production. That is deeply frustrating for OPEC countries currently restricting oil supplies in an attempt to push prices higher.

OPEC production fell by 300,000 b/d in August to 32.6 million. Libya leads the drop with a 170,000 b/d decrease to 840,000 b/d. The Saudis decreased production by 30,000 b/d to 10.05 million. However, they also reduced crude exports to 6.6 million b/d. For Iran and Nigeria, August marked the highest daily export rate year-to-date. Despite the decline in OPEC crude oil exports, oil prices continue to fall, with WTI losing 6 percent during August.

Russia and the Saudis have announced that they favor an extension of the OPEC production cuts through June of next year and a decision on this issue is expected to be taken in November. 

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Selected September 1 news items from Oilprice.com Editor Tom Kool include the following:

Gasoline prices to rise. "Gas prices are going to go up because of the flooding," U.S. Sec. of Energy Rick Perry told reporters. He also warned that the state attorney general would be watching to make sure price gouging did not occur. Texas is seeing fuel shortages both in Houston and elsewhere in the state. Tom Kloza, global head of energy analysis at Oil Price Information Service, told CNBC that a worst-case scenario would be retail gasoline prices spiking by 40 to 60 cents per gallon, pushing averages up to $2.75 per gallon. Patrick DeHaan, senior petroleum analyst for GasBuddy, said the price increases and supply problems could last for a month or more.

Investment banks slash oil price forecasts again, Brent at $54 in 2018. An August survey of investment banks by the Wall Street Journal reveals ongoing pessimism regarding the trajectory of oil prices. The average prediction from the 14 investment banks puts Brent crude at $54 per barrel in 2018, down $1 per barrel from the same survey a month earlier. It marked the fourth consecutive month that major analysts cut their price forecasts. The big reason is the expectation that the OPEC deal expires next year and the group ramps up production.

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.