The OPEC Reference Basket (ORB) moved higher for the second consecutive month to $49.60/b in August,
up about 6%, the highest monthly percentage gain for the year. Global crude oil prices improved on
continued signs of market rebalancing and a further decline in US stocks. Physical crude oil differentials
also showed a noticeable improvement due to strong demand, firm refining margins and tight supplies. In
addition to seasonal refined product demand, unplanned refinery shutdowns in Europe and the US Gulf
Coast (USGC) have helped refining margins globally. Year-to-date (Y-t-d), the ORB’s value was 30.9%
higher or $11.74, at $49.73/b.
Month-on-month (m-o-m), oil futures expanded further, with ICE Brent gaining 5.5%, to once again average
above the $50/b mark, supported greatly by declining US crude oil stockpiles, somewhat lower supplies and
healthy refined product market sentiments. However, by the end of the month, crude futures prices fell as
Hurricane Harvey threatened oil operations along the energy hub on the USGC. US gasoline futures,
however, jumped sharply and gasoline rose to its highest level in two years. ICE Brent ended August $2.72
or 5.5% higher at $51.87/b, while the NYMEX WTI increased by $1.38 or 3.0%, to stand at $48.06/b. Y-t-d,
ICE Brent is $9.49, or 22.2% higher at $52.14/b, while NYMEX WTI increased by $8.24, or 20.1%, to
The ICE Brent/NYMEX WTI spread widened significantly to near $4/b m-o-m in August despite consecutive
weeks of US crude stock draws. Healthy demand for distillate- and gasoline-rich crudes, tightening
fundamentals and the clearing of floating storage in the North Sea continued to support the Brent market.
The spread widened to average $3.81/b, representing a $1.34 expansion. During the week of 29 August
speculators cut WTI futures and options net long positions by 105,671 contracts to 147,303 lots, the US
Commodity Futures Trading Commission (CFTC) said. Speculators slightly reduced Brent futures and
options net length contracts by 1,296 to 416,551 lots during the same week.
The contango structure in the market continued to ease, particularly for Brent, which flipped into
backwardation for the first time since the second half of 2014. This took place as demand shot up for
prompt-loading barrels and amid increasing sentiment that the oil market will rebalance over the next year
with a major drawdown in crude and product stocks.
Global sweet/sour differentials were mixed in August; they widened further in Asia, while in Europe they
narrowed again on tighter sour supplies. On the USGC, the spread remained unchanged. In Europe, the
Brent premium to medium sour Urals crude decreased again by 36cent to 33¢/b, the lowest in more than two
OPEC Reference Basket
The ORB moved higher for the second consecutive month, up by nearly 6%, the highest monthly percentage
gain for the year. Global crude oil prices improved as OPEC and non-OPEC countries continued to conform
with voluntary output adjustments and US stocks declined further. Physical crude oil differentials also
showed a noticeable improvement due to strong demand, firm refining margins and tight supplies. In addition
to seasonal refined product demand, unplanned refinery shutdowns in Europe and the USGC have helped
support refining margins globally. Oil field maintenance – as well as diminished supplies of sour crude,
particularly in Asia and Europe due to OPEC and non-OPEC production adjustments, which mostly affects
sour grades – underpinned physical crude oil values. US crude oil stocks levels fell significantly over the
month amid higher refinery throughput as well as increases in US exports due to favourable arbitrage
economics. During the week of 25 August, US stock draws continued for the ninth consecutive week, with
stocks falling 5.4 mb w-o-w, US exports also continued at significant levels, particularly to Asia, replacing
lower OPEC sour crudes supplies to the region and capitalising on the record-breaking Brent/WTI gap, which
favoured sweet crude arbitrage from the US to Asia. Sweet crudes in Asia are priced against Brent, so a
wider Brent/WTI spread makes these grades more expensive relative to US crudes, which are priced against
WTI. Over the month, US exports averaged around 0.9 mb/d.
The ORB value rose m-o-m by $2.67 to settle at $49.60/b on average in August, up 5.7%. Compared with
the previous year, the ORB value was 30.9% higher or $11.74, at $49.73/b.
ORB component values improved along with relevant crude oil benchmarks and monthly changes in
respective official selling price (OSP) differentials. Crude oil physical benchmarks, namely Dated Brent,
Dubai and WTI spot prices, increased in August by $3.15/b, $2.65/b and $1.36/b, respectively.
Continuing improvements in price differentials, coupled with an uplift in crude benchmark Brent outright
prices, supported light sweet crude Basket components from West and North Africa to prices above $50/b.
Saharan Blend, Es Sider, Girassol, Bonny Light, Equatorial Guinea’s Zafiro and Gabon’s Rabi values
increased by $3.32/b on average, or 6.9%, to $51.33/b. Physical crude differentials for these grades
improved on higher demand from Asia, particularly China and India. Booming refinery profits are helping
West African oil producers to sell cargoes at higher prices, aided by a shortage in certain types of crude amid
OPEC production adjustments and geopolitical turbulence.
Tropical Storm Harvey caused in a shortage of refined products in the US, which also supported margins and
increased demand for West African gasoline- and distillate-rich crudes. At least 3.6 mb/d of refining capacity
was offline in Texas and Louisiana, or nearly 20% of total US capacity. Restarting plants even under the best
conditions can take a week or more. As a result of the outages, major pipelines carrying gasoline, diesel and
jet fuel started to adjusted deliveries or closed lines outright because of a lack of supply.
Latin American ORB components Venezuelan Merey and Ecuador’s Oriente edged up to $45.38/b and
$47.45/b, respectively. They gained $1.97, or 4.5%, and $2.24, or 5.0%, respectively. Tight sour crude
supplies in the USGC and high exports supported these grades.
Buoyed again by an uplift in OSP offsets and supported by healthy global sour markets, the value of multipleregion
destination grades Arab Light, Basrah Light, Iran Heavy and Kuwait Export improved further.
On average, these grade’s values expanded by $2.64 in August, or 5.7% to $49.07/b. Middle Eastern spot
components Murban and Qatar Marine saw their values improve by $2.49, or 5.1%, to $51.51/b and $2.26,
or 4.8%, to $49.71/b, respectively. The grades were underpinned by firm demand from Asia in general, but
most noticeably from Taiwan and India.
On 11 September, the ORB stood at $51.82/b, over $2.22 above the August average.
The oil futures market
Oil futures rose further in August, with ICE Brent gaining 5.5% and averaging above the $50/b mark,
supported greatly by a decline in US crude oil stockpiles, somewhat lower supplies and healthy refined
product market sentiments. Crude futures prices climbed earlier in the month on US dollar weakness and
momentum toward oil market rebalancing. Geopolitical developments also supported gains to two-month
highs. Prices advanced further with surging US fuel demand and strong refinery runs. US gasoline demand
was at 9.842 mb/d for the week ending 28 July, the highest on record. Before the end of first decade of the
month, crude oil futures prices continued increase further after a strong US jobs report bolstered hopes for
growing energy demand. Subsequently, oil prices started to fall amid concerns over global oversupply of
crude. During the same week, the biggest weekly draw in US crude stocks since September 2016 could not
prevent a slide in oil futures, as a surprise build in gasoline inventories and a continuing rise in US output
dictated market reaction. Before long, prices rebounded sharply as the dollar fell, US drillers cut rigs and
refined product futures led the oil complex higher after Energy Information Administration (EIA) data showed
a gasoline stock draw, while traders continued to track a potential hurricane in the Gulf of Mexico. However,
gains were limited amid the reopening of Libya's largest oil field.
By the end of the month, prices fell again as Hurricane Harvey threatened oil operations along the energy
hub on the USGC. US gasoline futures temporarily spiked as severe flooding disrupted refineries and energy
infrastructure. In contrast, crude prices dipped on expectations for reduced refinery demand. However, prices
normalized quickly with the return to the market of disrupted facilities.
ICE Brent ended August $2.72, or 5.5% higher, to stand at $51.87/b on a monthly average basis, while the
NYMEX WTI increased by $1.38, or 3.0%, to $48.06/b. Y-t-d, ICE Brent is $9.49, or 22.2% higher at
$52.14/b, while the NYMEX WTI rose by $8.24, or 20.1%, to $49.30/b.
Crude oil futures prices improved in the second week of September. On 11 September, ICE Brent stood at
$53.84/b and NYMEX WTI at $48.07/b.
As WTI futures rose during the 1st week in August, touching over $50/b for the first time since May, hedge
funds and other money managers raised their net long WTI crude futures and options positions, according
to CFTC data. Hedge funds raised combined futures and options positions by 43,861 contracts to
282,362 lots during the period. The level was the highest seen since mid-April. Hedge funds and other
money managers also raised their net long positions in futures and options contracts in Brent futures by
53,777 contracts to 342,348 lots during the same period.
Subsequently, hedge funds and money managers trimmed their bullish bets on WTI crude futures and
options positions for the third straight week. During the week of 29 August, the speculator group cut its
futures and options net long positions by 105,671 lots to 147,303 contracts, the highest amount in about a
month, the CFTC said. Money managers also slightly reduced Brent futures and options contract net lengths
by 1,296 lots to reach 416,551 contracts during the same week. This continued strength in Brent futures and
options net lengths is likely connected to a sudden tightening of inter-month spreads, which saw Brent move
from contango into backwardation between October and December. More generally, Brent inter-month
spreads have tightened much more than WTI’s since the last week of July, which has made Brent more
profitable for hedge fund managers with long positions. Total futures and options open interest volume in the
two exchanges was down at 5.66 million contracts.
The daily average traded volume for NYMEX WTI contracts increased further by 128,898 lots, or 9.3%, to
1,509,803 contracts, while that of ICE Brent was 89,643 contracts higher, up by 10.5% at 941,999 lots.
Daily aggregate traded volume for both crude oil futures markets increased by 218,541 contracts to
2.45 million futures contracts. In August, total traded volume for NYMEX WTI and ICE Brent futures were
higher at 34.73 and 21.67 million contracts, respectively.
The futures market structure
The global oil market contango structure continued to ease, particularly in Brent, which flipped into
backwardation for the first time since it slumped into contango in the second half of 2014 when the oil market
became oversupplied. This is due to the shooting up of demand for prompt-loading barrels, and amid
increasing sentiment that the oil market will rebalance over the next year with a major drawdown in crude
and product stocks. This first stirring of backwardation since oil prices were above $100/b is seen as sign of
tightening supplies and strong demand. It should also encourage those who have held physical crude in
storage during the oil glut to sell barrels into the market as it is no longer profitable to hold them.
Furthermore, the entire Brent forward curve continued to flatten and the back end is in backwardation.
Meanwhile, the contango in Dubai is almost flatt, buoyed by robust demand for spot crude in Asia and lower
supplies due to the OPEC production adjustment agreement. WTI remained in the same light contango over
the month on average, despite consecutive weeks of inventory draws.
The Dubai M1 52¢/b discount to M3 decreased to 9¢/b, contracting by 44¢. The North Sea Brent M1/M3
40¢/b contango flipped into a backwardation of 30¢/b, a 70¢ improvement. In the US, the WTI contango was
almost unchanged as WTI’s M1/M3 widened by 2¢ to negative 35¢/b.
The ICE Brent/NYMEX WTI spread widened significantly to near $4/b despite consecutive weeks of
US crude stock draws. Healthy demand for distillate and gasoline-rich light sweet crudes, tightening
fundamentals and the clearing of floating storage in the North Sea continue to support the Brent market. The
larger Brent/WTI spread has widely opened arbitrage trade from the US to Europe and Asia. US exports
stayed elevated at 0.9 mb/d. Although this record high should have helped narrow the WTI-Brent spread,
Tropical Storm Harvey will prevent this from happening, as refinery outages will weigh on Cushing balances
while strengthening those of Brent, further widening the spread. The first-month ICE Brent/NYMEX WTI
spread widened to $3.81/b in August, a $1.34 or 2.57% expansion.
The light sweet/medium sour crude spread
Global sweet/sour differentials were mixed in August when they widened further in Asia, while in Europe they
narrowed again on tighter sour supplies. In the USGC, the spread remained unchanged.
In Asia, Tapis premium over Dubai increased for the third month in a row, despite ongoing lower sour crude
supplies. The spread grew as the Brent/Dubai spread widened further to around $1.35/b, which further
slowed west-east arbitrage movement for Atlantic Basin crudes. Lower supplies of Vietnamese sweet crudes
amid the start-up of a new refinery there also supported the Asia Pacific light sweet oil market. Moreover,
continuing healthy demand for Asia Pacific light sweet crudes amid firm refining margins in Asia and new
requirements for refined products for export to the US in the aftermath of Harvey, supported the trend. The
Tapis/Dubai spread widened by 45¢ to $3.37/b in August. The Dated Brent/Dubai spread widened, improving
by 42cent to the advantage of Brent, a $1.34/b premium compared with the previous month’s 92cent/b premium.
In Europe, light sweet North Sea Brent premium to Urals medium sour crude decreased again by 36¢ to
33¢, a fresh two-year high on firm demand for sour crudes. Urals price differentials to Dated Brent
strengthened in the Mediterranean amid strong margins, limited supply and a steady flow of Baltic barrels to
Asia, which offset an outage at Shell's Pernis refinery. Meanwhile, late in the month Urals crude differentials
to Dated Brent in Northwest Europe weakened for an eighth consecutive session. The grade has been under
pressure after a loading plan for Baltic ports and Novorossiysk showed ample supplies amid a heavy
domestic refinery maintenance season, limited buying interest and weaker refinery margins.
In the USGC, the Light Louisiana Sweet (LLS) premium over medium sour Mars remained at $3.17/b. The
USGC grades rallied to their strongest levels in nearly two years after Brent's premium over US crude
widened, helping to increase the amount of crude exports overseas to Asia. Meanwhile, differentials on the
USGC were mixed in volatile trade with low liquidity, as tropical depression Harvey caused destruction
throughout the USGC energy industry. Trading was fairly thin, with many Houston traders out of their offices
because of flooding. About 4.4 mb of US refining capacity has been shut down by the height of the storm,
representing nearly a quarter of US refining production.
Impact of US dollar and inflation on oil prices
The US dollar (USD) generally declined in August against both major currency counterparts and emerging
market currencies, mainly on the anticipation of a more gradual pace of interest rate increases by the US
Fed. On average, the dollar dropped by 2.4% m-o-m against the euro – down 10.7% compared with last
December. Part of the weakness against the euro is related to the expectation that plans for the removal of
some degree of monetary policy accommodation, would be announced by the European Central Bank in the
upcoming meetings. The USD declined by 2.2% m-o-m against the Japanese yen, partly as a result of
uncertainties associated with tensions in the Korean Peninsula. It lost 0.6% against its Canadian counterpart.
These losses accelerated at the beginning of September after the Bank of Canada raised interest rates for
the second time this year. However, the dollar was slightly up by 0.2% against the pound sterling and by
0.4% against the Swiss franc.
On average, the US dollar declined by 1.4% against Chinese yuan in August – down by 3.5% since
December. China’s international reserves have risen since February on the effect of tightening capital
controls as well as some valuation effects. The dollar declined by 0.8% m-o-m against the Indian rupee, in
spite of the Reserve Bank of India cutting interest rates at the beginning of August, and it is down by 5.8%
since December. The dollar declined by 1.7% m-o-m against the Brazilian real, while falling by a slight 0.1%
on average against the Russian ruble, though declines accelerated towards the end of the month in tandem
with strengthening oil prices. The US dollar declined against the Mexican peso by a slight 0.2% - down
13.2% since last December, and is currently below the levels preceding the US election.
In nominal terms, the price of the OPEC Reference Basket (ORB) increased by $2.67, or 5.7%, from
$46.93/b in July to $49.60/b in August. In real terms, after accounting for inflation and currency fluctuations,
the ORB increased to $32.60/b from $31.23/b (base June 2001=100). Over the same period, the US dollar
declined by 1.4% against the import-weighted modified Geneva I + US dollar basket1
, while inflation declined