2017: Oil Price Review

 Issue 126 – 2017 in review

Introduction…2017 produced a year of unpredictable oil pricing.  We saw a low of $43 to a high of $60 per barrel for WTI.  Brent traded in the range of $45 to a high of $65 per barrel.  It was a year of reducing oil inventory with Russia taking that lead among OPEC and other oil-producing states.  Global inventories did decline and now OECD inventories are very close to the OPEC target.  One interesting observation is the markets generally ignored geopolitical risks.

Here are top ten events that impacted 2017 oil pricing:

  1. OPEC output cut agreement in late 2016 helped stabilize prices.
  2. Several large U.S. oil inventory buildups stimulated price declines.  This decline was compounded by the settling of traders long positions.
  3. Prices rise in March as supply-demand come in balance.
  4. Inventories rise world-wide during refinery maintenance.
  5. Crude inventories drop and prices balance.
  6. Expectations that OPEC will extend and deepen production cuts grows prices.
  7. Prices fall after OPEC cuts not increased and shale production costs decrease.
  8. Prices rise in early summer as refinery production increases.  Evidence that OPEC production cuts are still working.
  9. Hurricane Harvey hits Texas August 25th taking 3.5 MMbbl/d offline.  Even with the extensive damage, recovery of affected refiners is swift due to improved hurricane management.
  10. 2016 output cuts are extended through December 2018 supporting highest price levels for the year 2016.

In conclusion…2016 saw considerable oil price swings.  It is interesting to note that geopolitical concerns seemed not to impact pricing.  Rather, oil pricing was primarily impacted by the old law of supply versus demand.  Or at least the expectation of future supply and demand.

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References: “Crude Oil Price Index,” http://www.nasdaq.com/markets/crude-oil; Ashley Petersen, “What Affected Oil Prices: 2017 in Review,” Oil and Gas Investor, 29 Dec 2017