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How U.S. crude-oil inventories rose to their highest level ever

Crude supplies topped 518 million barrels last week: EIA

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The oil is piling up.
By

MyraP. Saefong

Markets/commodities reporter

U.S. crude-oil inventories have climbed to their highest weekly level on record at the Energy Information Administration, and not just because of rising domestic production.

A number of factors, including strong oil imports, higher exploration and production company spending, and a slowdown in demand have combined to lift total commercial crude stockpiles to 518.1 million barrels for the week ended Feb. 10, according to EIA data dating back to August 1982.

That figure tops the former record of 512.095 million barrels for the week ended April 29, 2016.

All-time high for U.S. crude supplies

“The continued growth in the stocks of crude is due to higher production in U.S. shale plays and imports that exceed the volume needed by refiners,” said James Williams, energy economist at WTRG Economics.

“We have enough petroleum inventory to cover close to 70 days of consumption, when the historical norm is well below 60 [days],” he said. The Organization of the Petroleum Exporting Countries is “trying to reduce it, but the effect of [its] efforts are not showing up in the U.S.”

MarketWatch asked several analysts how stockpiles managed to reach an all-time high, even as domestic crude production currently stands at 8.977 million barrels a day—below the record peak output of 9.61 million last seen during the week ended June 5, 2015.

Here are the reasons they came up with (in unranked order):

• Strong imports: “The real driving force has been the surge in imports,” said Troy Vincent, oil analyst at ClipperData.

‘The real driving force has been the surge in imports.’

Troy Vincent, ClipperData

The EIA on Wednesday report that crude imports for last week averaged 8.5 million barrels, down 881,000 barrels a day from a week earlier. However, over the last four weeks, they have climbed 9.9% vs. the same period a year earlier.

Matt Smith, director of commodity research at ClipperData, said that the U.S. saw nearly 10% more waterborne imports in 2016 than the year before.

“Bargain-basement prices for foreign oil in the last year have been too difficult for U.S. refiners to ignore,” he said. “We will likely see this trend ebb in the months ahead, as OPEC imports fall off—yet U.S. production is rising again to plug the gap.”

• OPEC: “Keep in mind the OPEC cut isn’t really fully felt inside the USA just yet,” said Nico Pantelis, head of research at Secular Investor.

Read: Why OPEC’s oil production cut is a ‘gift to U.S. producers’

OPEC members agreed in late November to cut their production levels at the start of the new year by 1.2 million barrels in a bid to alleviate a glut of global supplies and prop up prices which had dropped by about half from their 2013 levels. Data, including some included in OPEC’s monthly oil report issued Monday, have shown a compliance rate of 90% with the reductions.

But the “transit time between the countries where the USA is importing a large part of its oil from is several weeks, so cargoes arriving from the Middle East are still geared towards a full production rate in Saudi Arabia,” said Pantelis, noting that 11% of U.S. imported oil comes from Saudi Arabia.

The market will see lower import numbers materializing in the next few weeks, he added.

• Reduced refinery runs: U.S. crude-oil refinery inputs averaged about 15.5 million barrels a day last week—that’s 435,000 barrels per day less than the previous week and down about 390,000 barrels from the year-ago level, according to the EIA.

Refinery utilization stood at 85.4% of capacity, down from 87.7% a week earlier and 88.3% a year earlier, data showed.

That means there’s less crude headed to, and being processed at, the refineries.

• U.S. production: Charles Perry, chief executive officer of energy-consulting firm Perry Management, summed this up well: “the rise in [crude] inventories is due to increase in domestic drilling driven by good economics for domestic production.”

Weekly U.S. crude-oil production at just under 9 million barrels a day has a ways to go before reaching any records, but domestic output has generally been climbing since the second half of 2016 as oil prices for West Texas Intermediate CLH7, -0.19% and Brent crude LCOJ7, -0.13% climbed to levels they hadn’t seen in more than a year.

The EIA has estimated that more than half of U.S. production comes from shale oil.

A monthly report from the government agency released Monday showed expectations for a month-on-month increase of 80,000 barrels a day in March shale oil production.

And oil-rig count data from Baker Hughes BHI, +0.00% point to even more output gains ahead.

Active U.S. rigs drilling for oil have climbed over each of the last four weeks to their highest level in roughly four months.

• Rise in oil company spending: “Several North American oil producers have increased their [capital expenditure] budgets in the final quarter of last year, and this resulted in a corresponding production increase, which is boosting the inventory levels,” said Pantelis.

Exxon Mobil Corp. XOM, +0.41% announced in late January that it plans to spend $22 billion this year, 14% higher than the amount it spent in 2016.

Read: Exxon surprises Wall Street with its plan to ramp up spending

• Demand slowdown: S&P Global Platts estimated Chinese oil demand growth of 1.3% in 2016 to 11.35 million barrels a day, but that was down from 6.6% growth in 2015, when price declines boosted demand.

Reuters calculated Chinese oil demand growth of 2.5% in 2016, based on official data—a three-year low—down from 3.1% in 2015.

“Two years of OPEC overproduction to defend market share and the introduction of 4.5 million barrels [from 2007-08 levels] of incremental U.S. [lower 48 states] production that transpired concurrently with a slowdown in the rate of China oil demand as well as OECD oil demand, brought us to current record inventory levels,” said Chris Kettenmann, chief energy strategist at Macro Risk Advisors.

Oil shares pull Asian stocks higher; yen slips

By Saikat Chatterjee | HONG KONG

HONG KONG Oil shares pulled regional stock markets higher on Thursday after OPEC members agreed to curb output in a surprise deal, though investors were wary of chasing markets higher as the U.S. presidential election neared.

MSCI’s broadest index of Asia-Pacific shares outside Japan was up 0.9 percent by mid-morning, thanks to a bounce in energy shares, but other markets such as Hong Kong were trading near the day’s lows after an early jump.

Stocks in Europe were expected to open higher following Asia.

“Despite the favorable oil deal, foreign institutional investors are sticking to their favorite counters before the U.S. elections results as there is simply too much market uncertainty,” said Andrew Sullivan, managing director, sales trading at Halting International Securities Group in Hong Kong.

Japan’s Nikkei climbed 1.5 percent, after losing 1.3 percent the previous day. In Hong Kong, the benchmark index was up 0.5 percent with energy-related shares the biggest gainers.

Oil futures retreated in Asian trade as the market grew more skeptical of the deal, pondering how the group agreed to limit production and how OPEC would implement such a plan. [O/R]

“Investors and traders are skeptical – with good reason. More cynical traders are questioning the complete lack of detail, including the potentially problematic question of which nations will curtail production,” Michael McCarthy, chief market strategist at Sydney’s CM Markets, told Reuters.

Though OPEC’s first agreement to cut production since 2008 drove risky assets initially higher, the lack of detail made some investors wary.

Brent crude eased slightly after earlier climbing to a high of $49.09 when the market opened, its highest since Sept. 9. WTI crude edged lower to $46.99 a barrel, after first hitting $47.47, its highest since Sept. 8.

“I think the markets are still not fully convinced,” said Daisuke Uno, chief strategist at Sumitomo Mitsui Bank.

Still, the jump in oil prices boosted risk assets and undermined the yen, which is often seen as a safe haven at times of economic stress.

The dollar rose 0.7 percent to 101.38 yen, extending its rebound from one-month low of 100.085 touched on Tuesday.

The euro was higher at $1.12305, recovering from Wednesday’s low of $1.1182 helped in part by rebound in shares of Deutsche Bank.

($1 = 7.7538 Hong Kong dollars)

(Additional reporting by Keith Wallis in SINGAPORE and Hideyuki Sano in TOKYO; Editing by Eric Meijer and Kim Coghill)

Pipeline that spilled 30,000 gallons of crude oil in Ventura reopens

-Ventura County Star

Pipeline that spilled 30,000 gallons of crude oil in Ventura reopens

FILE PHOTO Crude oil flows down a Ventura hillside after a pipeline failed June 23. Nearly 30,000 gallons of crude oil leaked in the spill.

FILE PHOTO Crude oil flows down a Ventura hillside after a pipeline failed June 23. Nearly 30,000 gallons of crude oil leaked in the spill.

By Jean Cowden Moore, jean.moore@vcstar.com

A pipeline that leaked nearly 30,000 gallons of crude oil in Ventura has reopened, just eight days after an early-morning spill on June 23.

The pipeline reopened Thursday night after the state fire marshal certified that it was safe, said Tim Gallagher, spokesman for the pipeline’s owner, Crimson Pipeline. The certification came after the fire marshal’s office inspected the pipeline this week, Gallagher said.

But Mark Watkins, Ventura city manager, said he was frustrated that residents weren’t notified before the pipeline reopened, especially after a meeting Thursday night when they questioned company, local and state officials about the spill. Residents should be told what caused the spill, how long the cleanup will take, and what Crimson is doing so it doesn’t happen again, Watkins said.

“It’s very frustrating to find out they just put it back into service, and the community wasn’t notified,” he said. “We expect a higher level of communication in the future.”

Residents had not been informed of the reopening by 4:30 p.m. on Friday. The agencies involved planned to notify people by email and possibly by going door to door, starting Friday evening, Gallagher said.

State regulations required that Crimson start putting crude oil back into the pipeline as soon as it was certified safe, Gallagher said.

Before the fire marshal’s office inspected the pipeline, workers cleared out any remaining crude oil, using liquid nitrogen, Gallagher said. Then they did the inspection.

The inspection satisfied the California Department of Fish and Wildlife, said spokeswoman Amy Norris.

“If the fire marshal has certified that it’s safe, then we’re completely comfortable,” Norris said.

The spill, which started just northeast of Ventura High School, leaked crude oil into a nearby gorge but it did not reach the beach. The oil flowed for about half a mile down the Prince Barranca and Hall Canyon before it was stopped.

The cause of the spill, which started at a valve in the pipeline, is still under investigation. The valve had been replaced the day before the incident.

Crimson has had 10 spills in the past decade, causing about $5.9 million in property damage, according to the U.S. Transportation Department’s Pipeline and Hazardous Materials Safety Administration.

Crude oil to go into ‘PURGATORY’ after summer

Malaysia Hronicle

Crude oil to go into ‘PURGATORY’ after summer

Crude oil to go into ‘PURGATORY’ after summer

Oil has hovered around the $50 range since mid-May, and with summer travel almost in full swing one analyst thinks that rising demand will keep crude fairly stable for the next few months.

Come fall, however, a different story may start to emerge.

Tom Kloza, Global Head of Energy Analysis at the Oil Price Information Service, believes that high demand for gasoline means that crude will sit at a $50 “comfort point” for the next two months or so. Still, Kloza thinks there could be a fairly sizable drop after September rolls around

“We saw the highest demand ever, we used something on the order of 59 million gallons a day of gasoline,” he said last week on CNBC’s “Futures Now.” “That will prove as something that will help crude out for the next 8 or 10 weeks.”

The problem will surface after that period he said, when buoyant oil will “go into purgatory in the fall,” he added.

“You have lower refinery runs, you have a lot of gasoline because there are a lot of cheap hydrocarbons, and you have a drop of maybe 4 to 5 percent in demand even if the macroeconomic background is very steady,” he added.

A whole host of international events could also derail oil’s current stability. Kloza describedthe reaction to the Brexit results as “orderly and predictable” in an email Friday to CNBC. Yet he sees other global troubles as being more directly threatening to oil than the U.K.’s exit out of the European Union.

“In the fall, there’s no question there’s going to be a challenge in the marketplace, particularly if you see production in some of the places like Nigeria and Kurdistan will ramp higher,” said Kloza.

“I think we [also] have to worry about Gulf Coast hurricanes, which could knock out Gulf of Mexico production crude-side and really wreak havoc on the refined products side,” the analyst added.

Investors with their eye on oil shouldn’t discount the timeline leading up to the U.S. election this November, especially when trying to gauge demand in the fall.

“The question is really whether or not it’s a driving season thing and what happens after Labor Day,” Kloza explained. “You’ve got an election where people aren’t very happy with the choices, and they may show that it may not be to vote with [their] feet, but to vote with [their] cars in traffic.”

Oil dropped by more than 4 percent during Friday trading following the U.K.’s referendum results. Risk assets opened sharply lower in early trading on Sunday as investors continued to grapple with the fallout. – http://www.cnbc.com/

Crude oil futures – weekly outlook: June 27 – July 1

By Investing.com

Crude oil futures – weekly outlook: June 27 – July 1

© Reuters.  Oil lower, but pares back overnight losses on Brexit vote© Reuters. Oil lower, but pares back overnight losses on Brexit vote

Investing.com – Oil prices fell on Friday but clawed back some overnight losses after a shock vote by the U.K. to exit the European Union triggered a broad based selloff in global markets.

On the New York Mercantile Exchange, crude oil for delivery in August settled at $47.56 a barrel at the close, down $2.55 or 5.09% for the day, after falling as low as $46.70 a barrel in overnight trading.

Global benchmark Brent settled at $48.41 per barrel, down $2.50 or 4.9% having earlier traded as low as $47.54.

It was the largest one-day percentage decline for both contracts since February.

The U.K. voted by nearly 52% to 48% on Thursday to break away from the world’s biggest trading bloc.
British Prime Minister David Cameron, who had backed the failed Remain campaign, stepped down after the final referendum result was announced.

The decision heightened fears over the outlook for the global economy and triggered historic falls in stocks and currencies.

Global stocks saw more than $2 trillion wiped off their value and the pound fell by as much as 10% as investors scrambled into safe haven assets, like gold and government bonds.

Also Friday, Baker Hughes said that the number of rigs drilling for oil in the U.S. fell last week for the first time in four weeks.

The rising rig count in recent weeks had fueled concerns that price of around $50 a barrel could encourage U.S. producers to increase output and flood the still-oversupplied oil market.

In the week ahead, Tuesday’s supply data from industry group the American Petroleum Institute will be in focus ahead of Wednesday’s weekly government report on stockpiles.

Ahead of the coming week, Investing.com has compiled a list of these and other significant events likely to affect the markets.

Monday, June 27

New Zealand is to release data on the trade balance.

Tuesday, June 28

The U.S. is to release final data on first quarter growth as well as a private sector report on consumer confidence.

The API is to release its weekly report on crude stocks.

Wednesday, June 29

Japan is to release data on retail sales.

In the euro zone, Germany and Spain are to produce initial estimates on consumer inflation.

The U.K. is to release data on net lending.

The U.S. is to report on personal income and spending and pending home sales.

The EIA is to publish its weekly report on crude stockpiles.

Fed Chair Janet Yellen and other central bank heads are to attend the ECB central bank conference in Portugal.

Thursday, June 30

Germany is to report on unemployment change.

The U.K. is to release data on the current account.

The euro area is to unveil its preliminary inflation estimate for June.

The ECB is to publish the minutes of its latest meeting.

Canada is to report on monthly GDP growth.

The U.S. is to release data on jobless claims.

Friday, July 1

Japan is to release data on household spending, inflation and manufacturing and service sector activity.

China is to release official data on manufacturing and service sector activity as well as the private sector Caixin manufacturing index.

The U.K. is to release data n manufacturing activity.

The Institute of Supply Management is to report on U.S. manufacturing activity

Oil Prices Down but Pare Initial Losses After U.K. Vote to Leave EU

Markets
| Oil Markets

The ‘Brexit’ vote had triggered a selloff before a partial recovery

Energy Oil drilling untitled

By
Nicole Friedman

Updated June 24, 2016 3:32 p.m. ET
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NEW YORK—Oil prices dropped Friday but erased some overnight losses after the U.K.’s vote to leave the European Union triggered a selloff across markets.

U.S. oil prices settled down $2.47, or 4.9%, at $47.64 a barrel on the New York Mercantile Exchange, after falling as low as $46.70 a barrel in overnight trading. Brent, the global benchmark, had traded as low as $47.54 a barrel but settled down $2.50, or 4.9%, at $48.41 a barrel on ICE Futures Europe.

Both contracts posted their biggest one-day percentage declines since February.

Nearly 52% of the U.K. electorate voted Thursday in favor of leaving the EU, shocking investors and traders around the world who had expected the opposite result. Global stocks tumbled and the British pound sank against the dollar as investors moved money into safe-haven assets like gold.

Oil prices have wavered in recent sessions as uncertainty about the referendum’s results roiled markets around the world. After dropping to 13-year lows in the first quarter of 2016, oil prices have rallied more than 80% on expectations that the global glut of crude is shrinking. But some analysts say the market remains oversupplied and warn that prices could fall in the coming months.

The WSJ Dollar Index, which tracks the greenback against a basket of other currencies, recently rose 1.7%. A stronger dollar can weigh on dollar-priced raw materials like oil by making them more expensive to foreign buyers.

“Everything is trading off: risk assets across the board, from stocks to energy to other commodities,” said Katrina Lamb, head of investment strategy at MV Financial Group in Bethesda, Md., which manages about $500 million in assets.

“But it’s not meltdown territory,” she added.

Oil traders said they had not taken large positions ahead of the vote due to uncertainty, but the outcome still came as a surprise.

“The markets are almost always right, and they were basically betting that there wasn’t going to be a Brexit,” said Mark Waggoner, president of commodity brokerage Excel Futures in Bend, Ore. “I wish I’d come in early today—the phone’s been ringing off the hook” with customers asking for advice or canceling orders.

Some market watchers warned that prices could fall further as investors who had long positions, or bets on higher oil prices, close out their wagers.

The referendum result could weaken global oil demand by weighing on European economic growth, said Will Riley, co-portfolio manager at Guinness Atkinson Asset Management Inc., which oversees about $300 million in energy-equity investments.
But Europe isn’t the main driver for oil demand, he said, and Guinness Atkinson still expects international oil consumption to rise strongly this year. Relatively low oil prices have encouraged new demand and emerging economies in Asia continue to grow.

The vote also increases uncertainty for oil production in Scotland’s North Sea, as the country’s First Minister said the Scottish National Party would seek to hold a new referendum on secession if Britain chose to leave the EU. The U.K. produces nearly a million barrels of oil a day, or about 1% of global output.
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Others said the moves would be more transient, as the U.K. vote has little immediate effect on supply and demand in the global crude market. The U.K. accounts for less than 2% of the world’s oil demand.

“The same people that were driving cars yesterday are driving the cars tomorrow,” said Danilo Onorino, portfolio manager at Dogma Capital SA in Switzerland. “There is no chance whatsoever that the supply balance for oil will change because of Brexit.”

Also on Friday, oil-field-services company Baker Hughes Inc. said that the number of rigs drilling for oil in the U.S. fell last week for the first time in four weeks, but the rig count still rose in shale oil basins in Texas and North Dakota. The rising number of oil rigs in recent weeks fueled concerns that oil prices around $50 a barrel could encourage U.S. producers to invest in new production and flood the still-oversupplied market with crude.

The rig count in recent weeks “gives a clear signal to the market that $50-$55 is a soft ceiling,” said Warren Patterson, commodity strategist at ING Bank in Amsterdam. “We’re still fairly negative toward oil.”

“There are some signs that U.S. producers are stabilizing production,” said Lisa Kopp, senior vice president at U.S. Bank Wealth Management, which oversees $133 billion in assets. “That’s hindering the move toward the ultimate supply-and-demand rebalance.”

Gasoline futures settled down 7.85 cents, or 4.9%, at $1.5250 a gallon. Diesel futures fell 6.53 cents, or 4.3%, to $1.4553 a gallon.

Write to Nicole Friedman at nicole.friedman@wsj.com