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Crude Oil Price Movements

OPEC Monthly Oil Market Report – September 2017

1

Crude Oil Price Movements

The OPEC Reference Basket (ORB) moved higher for the second consecutive month to $49.60/b in August,

up about 6%, the highest monthly percentage gain for the year. Global crude oil prices improved on

continued signs of market rebalancing and a further decline in US stocks. Physical crude oil differentials

also showed a noticeable improvement due to strong demand, firm refining margins and tight supplies. In

addition to seasonal refined product demand, unplanned refinery shutdowns in Europe and the US Gulf

Coast (USGC) have helped refining margins globally. Year-to-date (Y-t-d), the ORB’s value was 30.9%

higher or $11.74, at $49.73/b.

Month-on-month (m-o-m), oil futures expanded further, with ICE Brent gaining 5.5%, to once again average

above the $50/b mark, supported greatly by declining US crude oil stockpiles, somewhat lower supplies and

healthy refined product market sentiments. However, by the end of the month, crude futures prices fell as

Hurricane Harvey threatened oil operations along the energy hub on the USGC. US gasoline futures,

however, jumped sharply and gasoline rose to its highest level in two years. ICE Brent ended August $2.72

or 5.5% higher at $51.87/b, while the NYMEX WTI increased by $1.38 or 3.0%, to stand at $48.06/b. Y-t-d,

ICE Brent is $9.49, or 22.2% higher at $52.14/b, while NYMEX WTI increased by $8.24, or 20.1%, to

$49.30/b.

The ICE Brent/NYMEX WTI spread widened significantly to near $4/b m-o-m in August despite consecutive

weeks of US crude stock draws. Healthy demand for distillate- and gasoline-rich crudes, tightening

fundamentals and the clearing of floating storage in the North Sea continued to support the Brent market.

The spread widened to average $3.81/b, representing a $1.34 expansion. During the week of 29 August

speculators cut WTI futures and options net long positions by 105,671 contracts to 147,303 lots, the US

Commodity Futures Trading Commission (CFTC) said. Speculators slightly reduced Brent futures and

options net length contracts by 1,296 to 416,551 lots during the same week.

The contango structure in the market continued to ease, particularly for Brent, which flipped into

backwardation for the first time since the second half of 2014. This took place as demand shot up for

prompt-loading barrels and amid increasing sentiment that the oil market will rebalance over the next year

with a major drawdown in crude and product stocks.

Global sweet/sour differentials were mixed in August; they widened further in Asia, while in Europe they

narrowed again on tighter sour supplies. On the USGC, the spread remained unchanged. In Europe, the

Brent premium to medium sour Urals crude decreased again by 36¢ to 33¢/b, the lowest in more than two

years.

OPEC Reference Basket

The

ORB

moved higher for the second consecutive month, up by nearly 6%, the highest monthly percentage

gain for the year. Global crude oil prices improved as OPEC and non-OPEC countries continued to conform

with voluntary output adjustments and US stocks declined further. Physical crude oil differentials also

showed a noticeable improvement due to strong demand, firm refining margins and tight supplies. In addition

to seasonal refined product demand, unplanned refinery shutdowns in Europe and the USGC have helped

support refining margins globally. Oil field maintenance – as well as diminished supplies of sour crude,

particularly in Asia and Europe due to OPEC and non-OPEC production adjustments, which mostly affects

sour grades – underpinned physical crude oil values. US crude oil stocks levels fell significantly over the

month amid higher refinery throughput as well as increases in US exports due to favourable arbitrage

economics. During the week of 25 August, US stock draws continued for the ninth consecutive week, with

stocks falling 5.4 mb w-o-w, US exports also continued at significant levels, particularly to Asia, replacing

lower OPEC sour crudes supplies to the region and capitalising on the record-breaking Brent/WTI gap, which

favoured sweet crude arbitrage from the US to Asia. Sweet crudes in Asia are priced against Brent, so a

wider Brent/WTI spread makes these grades more expensive relative to US crudes, which are priced against

WTI. Over the month, US exports averaged around 0.9 mb/d.