Alaska North Slope crude was up 18 cents at closing Sept. 2, holding the line above $75 at $75.49 per barrel. West Texas Intermediate added 27 cents to close above the psychologically significant $70 level at $70.10 and Brent was 34 cents higher at $73.90.
(See chart in the online issue PDF)
On Oct. 1, ANS zoomed $2.01 to close at $75.31 following a 200-missile attack on Israel -- perpetrated by Iran. WTI jumped $1.66 to close at $69.83 and Brent leapt $1.79 to close at $73.56.
The Oct. 1 Iranian missile attack was largely repelled, but Israel vowed to respond, feeding fears of a wider conflict that would jostle world oil markets.
WTI and Brent surged in early trading Oct. 1, but bulls were held in check as U.S. commercial crude oil inventories jumped 3.9 million barrels to 416.9 million barrels -- 4% below the five-year average for the time of year, the Energy Information Administration said in its weekly data release. Strategic Petroleum Reserve activity was listed separately.
Analysts polled by The Wall Street Journal had forecast a drop of 500,000 barrels for the week, which ended Sept. 27.
Total motor gasoline inventories increased by 1.1 million barrels for the week, the EIA said. Distillate fuel inventories contracted, however, by 1.3 million barrels.
Crude may have a way higher
Notwithstanding the recent crude rally, oil may have some catch up to do.
Analysts at Ned Davis Research noted in a report Oct. 1 that following a tumble in oil prices in September, crude was the worst performer among commodities in the third quarter, dropping more than 15%, Barron's reported Oct. 2. The analysts said oil hadn't been this oversold relative to other commodities since late 2021 and that this level of underperformance "has historically led to improved relative returns."
ANS shaved 3 cents Sept. 30 to close at $73.30, while WTI subtracted a penny to close at $68.17 and Brent fell 21 cents to close at $71.77.
Crude oil prices rose Sept. 27. ANS jumped 76 cents to $73.33, WTI gained 51 cents to close at $68.18 and Brent added 38 cents to close at $71.98.
ANS plunged $1.89 Sept. 26 to close at $72.57, as WTI plummeted $2.02 to close at $67.67 and Brent plunged $1.86 to close at $71.60.
From Wednesday to Wednesday, ANS was up $1.03 over its Sept. 25 close of $74.46, to a close of $75.49 Oct. 2.
On Oct. 2, ANS traded at a $1.59 premium to Brent, and at a $5.39 premium to WTI.
Costs rising in US shale
Robust production in the U.S. shale patch has kept a lid on world prices, despite production curbs from OPEC+. As oil prices have dropped recently, U.S. shale has enjoyed technological breakthroughs and competitive oilfield service costs to stay competitive, but the service cost part of that equation may soon change.
Oilfield-service costs for U.S. shale drillers are expected to rebound in 2025, clawing back part of the drop seen in 2024, according to industry consultant Enverus, Bloomberg reported Oct. 2.
A reduction in drilling and fracking, combined with the push to max out efficiencies, will slash per-well costs for shale operators in 2024 by 6.3%, Enverus said. But in 2025 those costs are expected to rise by 2.8% as explorers expand the hunt for natural gas and extend sideways wells.
"We believe activity has bottomed and oilfield-service prices will bottom by the end of this year," said Mark Chapman, oilfield-services principal analyst at Enverus. "An oversupply of fracture sand caused prices to fall this year, but an expected rebound in gas-directed drilling and a trend to longer laterals should boost prices in 2025."
Total spending by North American drillers is forecast to drop 1% in 2024, according to Barclays PLC, Bloomberg said.
Supply chain woes, inflation dog upstream
Inflationary pressure and supply chain woes are culprit in raising upstream costs in multiple operating environments worldwide, Rystad Energy said in a Sept. 30 note.
The average breakeven cost of a non-OPEC oil project grew to $47 per barrel of Brent, a 5% increase in the last year alone, the consultancy said, adding, "Despite rising costs, break evens are still less than current oil prices."
Offshore deepwater and tight oil projects remain the most economical new supply sources, while oil sands remain the most expensive, Rystad said.
Rystad uses breakeven costs to estimate how much crude oil will be delivered in the future based on economic viability of various sources. "The new research suggests that despite rising costs, more supply is likely in 2030, driven mainly by production from OPEC countries, where costs are low, and the resource potential is high," Rystad said. "The new equilibrium oil price for 105 million barrels per day of demand in 2030 is around $55 per barrel."
Onshore Middle East is the least costly source of new production, with an average breakeven price of $27 per barrel, and the segment boasts one of the most significant resource potentials, Rystad said, adding that offshore shelf is the next cheapest ($37 per barrel), followed by offshore deepwater ($43) and North American shale ($45).
Oil sands production break evens average $57 per barrel but can reach $75, it said.
"Rising breakeven prices reflect the increasing cost pressures on the upstream industry; this challenges the economic feasibility of some new projects, but certain segments, including offshore and tight oil, continue to offer competitive costs, ensuring supply can still be brought online to meet future demand," said Espen Erlingsen, Rystad head of upstream research. "Managing these cost increases will be critical to sustaining long-term production growth."
From 2014 to 2020, tight oil and OPEC thrived as both segments saw a lower breakeven price and an increase in potential volumes, Rystad said.
Since 2020, the potential supply from tight oil has fallen, Rystad said.
"The reduction in future tight oil supply is caused by the change in company strategy, with more cash paid out to investors and amid industry consolidation," it said.
