Table of Contents Table of Contents
Previous Page  9 / 111 Next Page
Information
Show Menu
Previous Page 9 / 111 Next Page
Page Background

Crude Oil Price Movements

OPEC Monthly Oil Market Report – August 2017

1

Crude Oil Price Movements

The OPEC Reference Basket (ORB) recovered in July to $46.93/b, up almost 4% on bullish market

fundamentals after two consecutive months of sharp declines. The oil complex rebounded on receding fears

of oversupply as solid seasonal demand soaked up some of what is seen as a glut on the market. Oil prices

rose nearly 10% after the last meeting of OPEC and major non-OPEC producers, including Russia, when

the group discussed potential measures to balance the oil market. Y-t-d, the ORB’s value was 33.7% higher

or $12.55, at $49.75/b.

Oil futures recovered m-o-m, ending July above $50/b. Prices improved as OPEC and non-OPEC countries

continued to comply with pledged output adjustments and US stocks declined further, providing more

evidence of global destocking. Bullish product demand, a fluctuation in Nigerian production, weakness in the

US dollar, healthy refining margins and improved perceptions of solid end-user demand, as well as

encouraging economic indications regarding China provided further support to crude prices. Short covering

also contributed to the rally in oil futures. ICE Brent ended July $1.59, or 3.4%, higher at $49.15/b, while

NYMEX WTI increased by $1.48 or 3.3%, to stand at $46.68/b. Y-t-d, ICE Brent is $10.23, or 24.4%, higher

at $52.18/b, while NYMEX WTI increased by $9.03, or 22.3%, to $49.50/b.

The ICE Brent/NYMEX WTI spread widened despite successive weeks of US crude stock draws. This

somewhat helped US exports. Improvement of fundamentals and the clearing of floating storage in the

North Sea supported the Brent market. The Brent-WTI spread widened to $2.47/b in July, representing a

12¢ expansion over June.

In July, short covering, rather than long building, has driven oil prices higher, which suggests fund managers

are becoming less bearish about prices rather than more bullish. Hedge funds reduced combined short

positions in Brent and WTI crude futures and options contracts by 163 mb, according to data published by

regulators and exchanges.

The contango structure narrowed in all markets, verging on sustained backwardation, as the oil glut started

to ease. This removed the financial incentive for traders to store barrels, a factor likely contributing to the

drawdown of stocks witnessed during the month.

Sweet/sour differentials were mixed in July, widening significantly in Asia, while narrowing in Europe on

tighter sour supplies. In Europe, the light sweet North Sea Brent premium to Urals medium sour crude

decreased again by 21¢ to 69¢, a two-year high on firm demand for sour crudes.

OPEC Reference Basket

The

ORB

recovered on bullish market fundamentals in July after two consecutive months of sharp declines.

It was up almost 4% m-o-m but y-t-d was slightly below $50/b y-t-d, for the first time this year. The oil

complex rebounded on receding fears of oversupply as solid seasonal demand soaked up some of what is

seen as a glut on the market. Bullish inventory reports over the month helped confirm the declining trajectory

of global inventories. Chinese oil imports in the first half of this year were up almost 14% from the same

period in 2016, helping to drain the global fuel glut. US crude oil inventories have fallen by more than 10%

from March peaks to 475.4 mb. Drilling for new production in the US is also slowing, with just 10 rigs added

in July, the fewest of any month since May 2016. Oil prices have risen nearly 10% since the last meeting of

OPEC and non-OPEC major producers, including Russia, when the group discussed potential measures to

balance oil markets. Prices were also lifted by short covering.