On the New York Mercantile Exchange (NYMEX), crude oil prices for NYMEX prompt-month contracts for Brent and Western Texas Intermediate (WTI) dropped for the second month in a row. By the end of the fourth Friday of August 2014, the prices of Brent and WTI dropped by 4% and 5%, respectively. When compared to the previous month, in August 2014 prompt-month contracts for Brent slid to $104 USD/Bbl, whereas the prompt-month contract for WTI sank to $97 USD/Bbl. In August 2014, data from NYMEX future settlements showed that Brent reached the lowest price levels in the past 12 months–$6 USD/Bbl below the August 2013 average price. The past 12-month averages for Brent and WTI on NYMEX are $109 USD/Bbl and $101 USD/Bbl, respectively.
The slightly larger drop in the European benchmark caused the Brent-WTI spread (represented by the purple area in the graph above) to hit $7 USD/Bbl. Also, the Brent-WTI spread has been $8 USD/Bbl on average over the past year.
The U.S. is currently at the center of attention as the market heads into maintenance season, during which time market participants will be aiming to reduce risk exposure. On the other hand, geopolitical tensions in the Middle East have continued, including U.S. air strikes in Iraq and the possibility of air strikes against Syria. Some strikes are in retaliation to the Islamic State terrorists who recently beheaded an American journalist in the region. Despite this, the global crude market tumbled in August 2014 as supply surged and demand declined.
The end of driving season in the summer and the encroaching refinery maintenance season weakened demand at a time when Libya and Iraq have swollen global supplies. The increase in crude supply from Libya (612,000 barrels a day) and Iraq (300,000 barrels a day) came as the EIA forecasted U.S. production will reach 9.28 million barrels per day next year, the highest annual average since 1972. The decline of global crude benchmarks may be attributed to strong supplies and tepid demand.
 “Crude Bets Tumble as Global Supply Surges,” Financial Post, August 25, 2014, accessed August 25, 2014, http://business.financialpost.com/2014/08/25/crude-bets-tumble-as-global-supply-surges/.
Data Sources: CME