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Crude Oil Price Movements

OPEC Monthly Oil Market Report – October 2017

1

Crude Oil Price Movements

The OPEC Reference Basket (ORB) increased by about 8% for the third consecutive month in September

to reach $53.44/b, its highest value since July 2015.The ORB also ended 3Q17 higher at about $50/b, while

its year-to-date (y-t-d) value rebounded to above the $50/b level. Oil prices found major support from

improving market fundamentals, particularly as related to oil market rebalancing with OPEC and

participating non-OPEC oil producers continuing to successfully drain the oil market of excess barrels as

demonstrated by a voluntary conformity level with production adjustments that has surpassed 100% so far.

The physical crude oil market was also very strong over the month. Y-t-d, the ORB’s value was 30.1%, or

$11.59 higher, at $50.13/b.

Month-on-month (m-o-m), oil futures surged further in September, with ICE Brent gaining more than 7% and

averaging above $55/b, supported by increasing evidence that the oil market is heading toward rebalancing,

geopolitical tensions in Iraq’s Kurdistan region and lower distillate stocks ahead of the winter season.

ICE Brent ended $3.64, or 7%, higher, to stand at $55.51/b on a monthly average basis, while NYMEX WTI

increased $1.82, or 3.8%, to $49.88/b. Y-t-d, ICE Brent is $9.33, or 21.6%, higher at $52.51/b, while

NYMEX WTI rose by $7.84, or 18.9%, to $49.36/b.

The ICE Brent/NYMEX WTI spread widened significantly to reach its widest level since August 2015,

making US crude the most attractive grades for arbitrage into both Europe and Asia. Hurricane damage to

US refineries hit demand for WTI and pressured prices, while Brent prices were boosted by OPEC and

non-OPEC output adjustments, maintenance to North Sea oil fields and strengthening demand in Europe.

The spread widened to $5.64/b m-o-m, a $1.83, or 48%, expansion.

The surge in oil prices attracted fresh speculative length in September. Hedge funds have become strongly

bullish on the outlook for all parts of the petroleum complex. Hedge funds and other money managers raised

their combined net long position in futures and options linked to ICE Brent and NYMEX WTI by

196,579 contracts, about 197 mb of crude oil, over the month to the week ending 26 September.

Since last month, the front end of the Brent crude contract curve flipped into backwardation through

December 2019, reflecting tighter supplies and strong refinery demand. In contrast, the WTI contango

worsened, which continues to signal large oversupply. Hurricane Harvey exacerbated the excess of

US domestic supply. The Dubai market structure was in backwardation, causing differentials for Middle

Eastern crudes to reach their highest premiums in months.

Sweet/sour differentials in Asia and Europe widened significantly, as light sweet Brent outright prices

improved markedly compared to sour grades. In the US Gulf Coast (USGC), the spread remained almost

unchanged for the second consecutive month at $3.11/b. The Tapis/Dubai, Brent/Dubai and Brent/Urals

spreads widened to $4.76/b, $2.56/b and $1.18/b, respectively.

OPEC Reference Basket

The

ORB

monthly and y-t-d values rebounded to above $50/b in September. The ORB increased sharply for

the third consecutive month, jumping a hefty 8% to reach its highest value since June 2015 and nearing the

$55/b level. The ORB also ended 3Q17 higher at about $50/b.

Oil prices rose steeply in September amid major support from improving market fundamentals, particularly as

relates to the oil market rebalancing as OPEC and key non-OPEC oil producers continue to successfully

drain the oil market of excess barrels as demonstrated by a more than 100% conformity level so far with their

voluntary production adjustments this year. Supporting this surge in oil prices was heightened geopolitical

risk as Turkey threatened to cut oil flows from Iraq's Kurdistan region toward its ports, putting more pressure

on the Kurdish region over its independence referendum. Prices also rose on tightening US distillate stocks

as its supplies contracted while exports continue to be robust. Physical crude oil differentials also showed a

noticeable improvement due to strong demand, firm refining margins and tight supplies.