Author: Tom Whipple

Oil prices were little changed last week with New York futures trading around $52 a barrel and London around $57. Numerous factors continue to affect oil prices: Baghdad’s seizure of the Kirkuk oil fields and the consequent reduction in exports; a stronger US dollar brought on by the prospect of a tax cut; a falling US oil-rig count; a large drop in US crude inventories due to the recent hurricanes and unprecedented exports; the brightening prospects for a nine-month extension of the OPEC production freeze; and finally a warning that the China’s economy may not be doing as well as many believe. When all these forces pulling in various directions were netted out, there was little change.

Prices climbed last week with Brent up almost 3 percent to $57.17 a barrel and WTI up over 4 percent to close the week at $51.45. The major developments affecting prices was an unexpected jump in Chinese oil exports of 1 million b/d in September to 9 million and the announcement that the President would not certify Iranian compliance to the nuclear accord. Statements by OPEC and Russian officials concerning a possible extension of the production freeze and the growing concerns that there will be hostilities in the aftermath of the Kurdish independence vote also supported prices.

US crude futures fell to $49.23 on Friday for a weekly loss of nearly 5 percent – the first weekly drop in more than a month. Hurricane Nate struck the US Gulf Coast Saturday night forcing the temporary closure of some 70 percent of US offshore oil production. In comparison with other recent hurricanes, Nate was relatively weak, so the damage to oil production and refining should be minimal and production back to normal in a day or two.

After climbing steadily for over a month, oil prices slid downwards about a dollar a barrel last week ending up circa $51.50 in New York and $56 in London. The summer price surge took oil to the highest seen in two years with New York futures climbing from $42 a barrel in late May to peak above $52 last week. Several factors sustained the summer price surge. OPEC and the IEA released reports forecasting that global consumption would be higher. The Kurd’s independence referendum which led to Turkey threatening to block Kurdish oil exports was another factor, as were the effects of the hurricanes in the Gulf of Mexico.

Oil prices continued to climb last week with US futures closing at $50.66 and London at $56.90. The $6 spread between NY and London is mostly due to the aftermath of the US hurricanes which have resulted in the growth of US crude inventories while elsewhere they have declined. Market sentiment has changed in the last few weeks with many now convinced that oil prices will be moving higher due to the OPEC production cuts and strong demand for oil products brought on by the relatively low prices. The IEA just upgraded its demand growth estimate for 2017 to 1.6 million b/d. If growth like this continues, it will eat through the global surplus rather quickly.