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Crude Oil Price Movements

OPEC Monthly Oil Market Report – July 2017

1

Crude Oil Price Movements

The OPEC Reference Basket (ORB) declined in June to $45.21/b, down more than 8% to its lowest value

for the year. The oil market witnessed a sell-off amid significant bearish sentiment ignited by excess oil

supply and still-high oil inventories, despite ongoing high conformity by OPEC and non-OPEC participating

producers. Oil continued to be weighed down by the slow pace of inventory drawdown globally amid a

rebound in global oil supplies. Since reaching a 2017 peak in early February, the ORB’s value dropped 21%

by June. Nevertheless, towards the end of the month, its value recovered. Year-to-date (Y-t-d), the ORB’s

value was 38.3% higher or $13.90, at $50.21/b.

Month-on-month (m-o-m), the two main oil futures tumbled into bearish territory in June, with ICE Brent

settling below $50/b for the first time this year amid a new cycle of short-selling on concerns that rising

global supply will counter output adjustments by OPEC and non-OPEC producers. US crude inventories

remain more than 100 mb above the five-year seasonal average. ICE Brent ended June $3.85 or 7.5%

lower at $47.55/b, while NYMEX WTI plunged $3.34 or 6.9%, to stand at $45.20/b. Y-t-d, ICE Brent is

$11.47, or 27.8%, higher at $52.68/b, while NYMEX WTI increased by $10.17, or 25.6%, to $49.95/b.

The ICE Brent/NYMEX WTI spread narrowed on successive weeks of US crude stock draws and ample

light sweet crudes supplies in Europe. This tighter spread has weakened demand for US crude from Asian

refiners. The spread narrowed to $2.36/b, a 50¢ contraction.

Money managers’ bearish, or short, bets on crude oil prices have exploded further in June. In the US, crude

market short positions doubled in just two months to an equivalent of nearly 180 mb, while in the Brent

market investors are sitting on record short positions of nearly 177 mb.

The contango structure widened marginally in the Brent and Dubai markets on ample supplies in Europe

and somewhat slower demand in Asia. However, there was a backwardation of forward market structures

earlier for the second half of 2017 which has flipped into contango for the entire futures curve of both

NYMEX WTI and ICE Brent.

The sweet/sour narrowing differentials trend that began earlier in the year eased on the US Gulf Coast

(USGC) and in Asia. However, sour crudes continued to strengthen relative to sweet in the European

market as OPEC and non-OPEC supply adjustments limited availability of the sour grade while increasing

production in the US and the Atlantic Basin created a glut of light sweet crudes.

OPEC Reference Basket

On a monthly average basis, the

ORB

declined sharply in June for the second month in a row. It was down

around 8% m-o-m to its lowest value for the year and remained below $50/b. The oil market witnessed

significant bearish sentiment in June, ignited by excess oil supply and still-high oil inventories, despite

ongoing high conformity by OPEC and non-OPEC oil producers. Oil has been weighed down by market

exasperation with the slow pace of inventory drawdown globally, even as major oil producers continue to

reduce oil production by 1.8 mb/d for the entire first half of 2017. Refinery demand was also good this spring,

with crude runs setting twice at weekly all-time highs, pulling crude stocks lower in eleven of the last 13

reporting periods, according to Energy Information Administration (EIA) data. Even with inventories chipping

away at the surplus to the five-year average, prices fell to lows not seen since November 2016, revealing

some fear that refiners will start scaling back operations, thus removing a key driver. The ORB also ended

the second quarter down by a significant 6.6%, the first and largest decline since a fall of nearly 25% quarter-

to-quarter in 1Q16. Nonetheless, it remained above $50/b y-t-d. Furthermore, since the 2017 high of

$54.24/b struck in early February, the ORB value plunged by 21% in June to reach to its lowest value so far

this year at $42.58/b late in the month.

However, toward the end of the month the oil market recovered somewhat with the ORB ending the last

session of June at $45.63/b.