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The
monthly average U.S.-dollar price of West Texas Intermediate crude oil advanced
in July, rising by $3.16 (+4.7%), to $71.04 per barrel. The increase occurred within
an environment of a stronger U.S. dollar, the lagged impacts of a 416,000
barrel-per-day (BPD) jump in the amount of oil supplied/demanded during May (to
20.4 million BPD), and a leveling-off in accumulated oil stocks (monthly
average: 408 million barrels).
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From
the 30 July 2018 issue of Peak
Oil Review:
Oil
prices climbed steadily through Thursday (7/26), supported by easing US-EU
trade tensions and a temporary shutdown by the Saudis of a critical crude oil
shipping lane. On Friday prices fell in sympathy with the US equities market to
end the week at $74.29 in London and $68.69 in New York. Crude prices were
unfazed last week by the unexpectedly robust US GDP figure, or the threatening
rhetoric exchanged between Tehran and Washington.
There
are so many issues affecting oil prices these days that analysts are all over
the map on forecasts for oil prices. At the bottom of the forecast range is
Citi bank which says that Brent soon could fall back into a trading range of
$45 to $65 a barrel. Goldman Sachs is in the middle forecasting a $70-80 range
for Brent, while Bank of America says that Brent could rise to $90 by the
second quarter of next year. However,
the Bank says that should Iranian exports be completely cut off then there
would be a price spike above $120 a barrel. An interesting outlier from
economist Philip K. Verleger suggests that oil prices could increase to $200 a
barrel solely because of new regulations on sulfur emissions for maritime fuels
which begin in 2020.
Some
believe that the markets are ignoring the risks of tightening supplies. These
analysts note that the expected increase in oil exports from OPEC and Russia
has not materialized and that reports of spare Saudi capacity that will be
brought into production are overblown. The attack on two Saudi oil tankers in
the Strait of Bab El Mandeb by Yemeni Houthi forces could presage more troubles
in the area. The Bab El Mandeb is not militarized by US-NATO naval forces --
which means it is far more exposed to attacks than the Strait of Hormuz.
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Selected
highlights from the emailed 31 July 2018 issue of OilPrice.com Intelligence Report include:
Oil
prices rose on Monday (7/30), in part because of a weaker dollar. But prices
then fell significantly on Tuesday. "The market's attempting to
stabilize," said Gene
McGillian, VP of research at Tradition Energy. "Right now we're seeing
a balance between the ideas that the increase in production from Saudi Arabia
and Russia is going to offset the loss in Venezuela and Iran." As July
draws to a close, oil is set for its largest monthly loss in over a year.
Permian pipelines beginning to
bottleneck. Permian pipelines are
starting to “max
out,” according to data from Kayrros. That means that price differentials
are set to widen through mid-2019 as production continues to edge up. The
earliest relief will come from the BridgeTex pipeline expansion, which will
come online in early 2019, but it will only add 40,000 bpd. The bottleneck is
expected to force a slowdown in production growth, and Morgan Stanley estimates
that the Permian might only be able to add 360,000 bpd next year, down from the
Wall Street consensus
of about 650,000 bpd.
Trump plans to water down fuel
efficiency standards. The Trump
administration is expected to unveil a deregulatory effort aimed at fuel
efficiency standards in cars and light duty trucks. The effort will freeze
Obama era regulations after 2020, requiring automakers to average a fleet wide
corporate average fuel economy (CAFE) at about 37 miles per gallon, instead of
allowing those standards to steadily rise to above 50 mpg through 2025. The
proposal could lead to increased
fuel demand by about 500,000 bpd through 2029. The crucial and controversial
component would be the federal government's attempt to strip California of its
authority to set its own standards. It is almost certainly headed for a
protracted legal fight.
Why did Saudi Arabia cease oil shipments
through Bab el-Mandeb? Reuters
looks into the question of whether Saudi Arabia had political motives when it
halted oil shipments through the Strait of Bab el-Mandeb last week. Because
other exporters did not suspend shipments, Saudi Arabia's move is curious.
Saudi officials could be trying to draw western powers into the war with Yemen
by sounding the alarm on the threat to oil shipments, or it could be putting
pressure on Europe to take a harder line on Iran.
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.
