Friday Oil Market Musings

It wasn’t supposed to happen this way.

WTI has finally fallen, as we expected it to, but not due to an oversupply of light crude and condensate causing domestic prices to drift away from Brent.  No, instead Brent weakness due to OPEC’s lack of desire to defend price and sluggish demand has lowered the tide for all boats and WTI is along for the ride.

Source: Yahoo Finance
NYMEX: WTI Source: Yahoo Finance

But how we got to this lower WTI price could change the outcome we expect from it.  One thesis we’d shared with clients over the past year was that fundamentally driven US oil market weakness was coming. The market was blissfully unaware of just how fast US oil production would grow over the next eighteen months.   Over the past year, with US light waterborne imports all but displaced, limited new demand from refinery expansions and splitters, and too few exceptions to the export ban, all the easy outlets for the growing supply of US crude were gone.  Producers would continue to accelerate activity right up until the day that the domestic oil prices dropped, and we’d have a huge mess on our hands.

But you know what messes are good for?  Building political momentum.  Like political momentum to open up the gates for crude oil exports.

So the question is, does WTI weakness caused by Brent weakness stick around long enough to slow down US production acceleration just enough to avoid disaster? And if we avoid that disaster, what is the implication for crude oil exports?

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Kathryn Downey Miller is President of BTU Analytics where she leads the firm’s consulting and analytics groups in delivering market advisory services to clients across all sectors of the industry. Additionally, Kathryn oversees strategic planning, financial budgeting and analyst development for the company. Prior to founding BTU Analytics, Kathryn built market expertise in a diverse set of prior industry roles, including buyside investment research at an energy focused hedge fund, energy market fundamentals consulting at Bentek Energy, investor relations strategy consulting for E&P companies and investment banking at Citigroup. She speaks frequently at industry events on North American energy markets and is a CFA charterholder.

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