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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.
