February 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 $7.04 (+13.5%), to $59.05 per barrel in February. That increase occurred within the context of a modestly stronger U.S. dollar (broad trade-weighted index basis -- goods and services), the lagged impacts of a 94,000 barrel-per-day (BPD) increase in the amount of petroleum products demanded/supplied during December (to 18.8 million BPD, on par with volumes during/after the Great Recession), and a late-February jump in accumulated oil stocks (February average: 470 million barrels).

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From the 1 March 2021 issue of The Energy Bulletin:

US crude futures were up nearly 22% in February with expectations of shrinking supplies and a further rebound in consumption as economies worldwide begin to reopen. However, the market is facing a possible supply increase in April from OPEC+ and variants of Covid-19 continue to spread.

Shale producers reported almost 6 million barrels of combined oil-output losses during the freeze the week before last. According to Bloomberg News calculations, Occidental Petroleum Corp. and Pioneer Natural Resources Co., two of the largest producers in the Permian Basin, alone had a combined loss of about 3.8 million barrels. Meanwhile, refineries along the Gulf Coast are in the process of restarting, though some plants are facing lengthy repairs to critical processing units. The majority of the plants along Texas's refinery row are in the process of restarting, with most expected back online by mid-March.

Rumblings are starting to emerge that prices could once again top $100 a barrel by the end of next year. The Bank of America sees potential spikes above $100 over the next few years on improving fundamentals and global stimulus. Speculators are also getting in on the action, increasing bets in the options market that oil will reach the vaunted level by December 2022. These views are ultra-bullish, but they highlight increased confidence in the oil market after Brent rallied more than 200% after hitting an 18-year low during the pandemic. Demand has bounced back in key Asian markets, while OPEC+ is withholding barrels, and a lack of investment is keeping shale supplies at bay. Goldman Sachs this week lifted its third-quarter forecast by $10 to $75 a barrel.

The $100 mark occupies a special place in many traders' minds, as oil hovered around that level for several years in the early part of the last decade. In those years, demand from emerging markets enticed drillers into ever more expensive locales, from deep ocean beds to Canada's tar sands.

That era ended in 2014 when US shale firms proved they could pump massive amounts of oil at far lower costs. But while the vaunted price level has been out of the market's reach since then, it hasn't been out of traders' minds. Forecasts for $100 are far from the current consensus. The median analyst forecast compiled by Bloomberg has Brent staying below $65 a barrel through 2025. And there are plenty of reasons to be skeptical of such a resurgence. For one, the OPEC cuts that have limited supply are artificial, and the cartel has enough spare capacity to meet any shortfall should demand rocket following a worldwide recovery from the pandemic, according to Bloomberg Intelligence.

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Selected highlights from the 26 February 2021 issue of OilPrice.com’s Oil & Energy Insider include:

While downside risks remain, banks are now openly talking about the possibility of $100 oil at some point. OPEC+ still has the power to send oil prices down, but very few analysts are staking out overly bearish outlooks.

Traders betting on $100 oil. The open interest on $100 strike Dec 2022 calls has exploded higher since the turmoil in the Texas energy markets. $100 oil is still a gamble, but there is more interest in triple-digit oil prices than there has been in years.

Shell’s Deer Park refinery could take until April. Royal Dutch Shell’s Deer Park refinery in Texas could take until April to restart, following damage from the freeze across Texas.

China’s oil imports to slow. China’s oil imports in the second quarter are expected to slow in the face of higher prices and refinery maintenance.

OPEC+ considers modest production boost. OPEC+ will discuss a modest increase in oil production at next month’s meeting, sources told Reuters. The most likely number is an increase of 500,000 bpd beginning in April. At the same time, Saudi Arabia’s voluntary 1 mb/d cuts are set to expire.

Pioneer: U.S. shale no longer threat to OPEC. OPEC won’t have to worry about U.S. shale growth anymore, according to Pioneer Natural Resources. “I’m confident that we can assume the Iranian barrels into the marketplace over time and then U.S. shale is no longer going to be a threat to OPEC and OPEC+,” Scott Sheffield said.  

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.