Mills: Crude Oil Futures Up 5 Percent In October

image: Alex Mills

Alex Mills

By Alex Mills

Crude oil futures price during October increased 5 percent on the New York Mercantile Exchange (NYMEX), closing at $54.38 on Oct. 31 for 30-day delivery.  The posted prices in most Texas locations were about $50, except for South Texas, with most purchasers posting in the $44 range.

Crude oil sold in London showed even more strength closing almost $7 higher than NYMEX up 6.7 percent for October. The Brent contract for December delivery on ICE closed at $61.37 per barrel on Oct. 31.

U.S. crude oil exports have become more attractive because of the price differential between Brent and NYMEX.  Exports have increased to 2 million barrels per day (bd).

The price differential between WTI and Brent reached a high in 2011 to 2013 when Brent crude oil sold for as much as $27 per barrel more than WTI, according to a report from the Energy Information Administration.

“Between 2011 and 2013, U.S. crude oil production grew faster than transportation, storage, and refining capacity could accommodate, and restrictions on exporting domestically produced crude oil led to relatively low prices for WTI compared with Brent,” EIA said.

U.S. law prohibited the export of domestic crude oil until December 2015 when the ban was lifted.  As exports have increased to compete with foreign oil, the price differential decreased in 2016 to an average of less than $1 per barrel, EIA said in its report.

The destruction caused by Hurricane Harvey along the Gulf of Mexico to the refining and transportation system created an oversupply of oil in the U.S., but it appears to be working itself out.

U.S. crude and gasoline futures extended gains in post-settlement trading after the American Petroleum Institute said that U.S. oil inventories fell far more than expected. Crude inventories fell 5.1 million barrels in the week to October 27th to 456.8 million, compared with analysts’ expectations for a decrease of about 1.8 million barrels.

Gasoline stocks plunged 7.7 million barrels, versus forecasts of a 1.5 million-barrel draw, the API said.

Bullish sentiment has been fueled by a pledge by OPEC, Russia and other exporters to hold back about 1.8 million bpd in oil production to tighten markets. OPEC’s adherence to its pledged supply cuts rose to 92% Saudi Arabia continued to produce below its OPEC target and output in Venezuela, in economic turmoil, declined further.

Saudi Crown Prince Mohammed bin Salman said that of course he wanted to prolong OPEC’s output-reduction deal into 2018. That was after Russia’s President Vladimir Putin said an extension should run through at least the end of next year. With the leaders of the world’s two biggest oil-exporting countries on board, an agreement is seen as all but certain at a meeting in Vienna on Nov. 30.

Oil production in the U.S. has risen almost 13% since mid-2016 to 9.5 million bpd.

Alex Mills is President of the Texas Alliance of Energy Producers.  The opinions expressed are solely of the author.

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