EDITORIAL: Oil Price Review

• Published date: 01 April 2018
• Date: 01 April 2018
• DOI: http://doi.org/10.1111/oet.12565

OIL PRICE REVIEW

First quarter 2018

Dated Brent crude 29 December close: $66.73 per barrel

December 30 to January 5 Friday close: $68.01

The restoration of deliveries through the Forties Pipeline

System, which had been shut following the discovery of a

crack on December 11, did nothing to stop the rise of Brent

and WTI as traders focused on the additional demand being

created in the eastern United States by freezing temperatures.

In many ways, the rise in prices was a continuation of the

momentum from the last trading week of 2017, when con-

tinuing production discipline by OPEC and the temporary

loss of some production in the United States and Libya

pushed many prices to their highest in over 2 years. A slight

fall in crude futures prices in London and New York follow-

ing predictions of a thaw in the frozen parts of the United

States was not sufficient to stop the rally in prices, and fur-

ther gains looked set to follow as most traders remained res-

olutely bullish.

January 6 to 12 Friday close: $69.64

North Sea Dated crude prices went above $70/bbl for the

first time since the end of 2014. US grades were also at

3-year highs as crude supplies were seen as being tight on

both sides of the Atlantic, while in Asia OPEC’s output cuts

were holding firm, pushing Dubai prices up by nearly $2.

Some of the more impressionable market bulls began to

forecast $100 oil in the near-future as cold US weather, fall-

ing stock levels and rising tensions in the Persian Gulf, all of

these regular winter occurrences, pointed to still higher

prices in the coming weeks. Some crudes benefited more

than others. Low demand for African crude in the United

States and parts of Asia left several cargoes unsold, while

the heavier Asia/Pacific blends such as Indonesia’s Minas

and Australia’s Vincent suffered from low demand for low

sulfur fuel oil and atmospheric residue. Product prices rose,

led by gasoline.

January 13 to 19 Friday close: $68.56

Crude prices got off to a flying start as Brent prompt-month

futures once more breached the $70 mark on the Monday,

rising to a 3-year high; but that proved to be the end of the

rally that had begun in late-July 2017, as reports emerged of

rising US supply alongside a fall in US refinery demand,

along with a series of upward revisions of supply forecasts

for the year. The recent rise in Brent and other North Sea

crude prices moreover was beginning to price these North

Sea crudes out of markets in Asia, leaving Persian Gulf sour

grades and Russia’s sweeter ESPO to make gains relative to

Atlantic Basin levels. A backwardation, where prompt prices

exceed those of the outer trading months, that was develop-

ing in North Sea markets indicated future price weakness.

Physical Brent lost more than $2/bbl on the week. Falling

prices did little for some North Sea and West African crudes,

with many cargoes reported unsold: a situation made worse

by poor refining margins for naphtha. Middle distillate

prices showed the most strength throughout the week.

January 20 to 26 Friday close: $70.08

It was back to the bull market as traders took their cue from

rising equities—and vice versa—as a wave of new year eco-

nomic optimism hit many of the world’s financial markets.

The mood was helped along by hints from Saudi Arabia and

Russia that the cuts agreed by OPEC and its allies would be

extended beyond their planned expiry at the end of 2018. A

fall in US crude stocks for the tenth straight week completed

the picture of a rising oil market, taking Brent futures to a

high of the week at $70.53/bbl. In Europe and Asia, crude

prices were helped upwards by good refining margins for

middle distillate. Gasoline prices made strong gains.

January 27 to February 2 Friday close: $67.45

One result of the previous weeks’price rises was the build-

up of speculative long positions in oil, making markets

vulnerable to any sudden change in sentiment to produce a

sudden and rapid sell-off in both futures and forward

DOI: 10.1111/oet.12565

10 © 2018 John Wiley & Sons Ltd wileyonlinelibrary.com/journal/oet Oil and Energy Trends. 2018;43:10–12.