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Oil industry comes to terms with cheap crude oil

FROM THE AUSTRALIAN BUSINESS REVIEW
Georgi Kantchev
Dow Jones
7:13AM June 20, 2017

Three years after the price of crude began its rapid descent, the oil industry and investors are finally resigned to the idea of lower prices for longer, potentially ending a period of crisis for the sector.
The price of Brent crude, the international benchmark, is down 59 per cent since it hit a closing high of $US115.06 a barrel three years ago on Monday. West Texas Intermediate, the US gauge, also is 59 per cent lower than the $US107.26 high it hit a day later.
The steep fall sparked a slump in oil company profits, recessions from Russia to Venezuela, and huge job cuts across the world’s oilfields.
But now, petrostates, investors and major oil companies are adapting to a world in which they see a range of $US50 to $US60 a barrel as the new equilibrium. The industry has had little choice but to accept the new reality after the Organization of the Petroleum Exporting Countries and other big producers failed to lift oil prices by capping their production, most recently at a meeting in late May.
Producers have cut costs, focused on more-profitable assets and no longer throw money at costly projects in places like the Arctic. Their ability to profit at lower oil prices has helped steady investors’ nerves, and they are starting to fund new projects again, though a debate is still raging over the prospect of a supply crunch down the line.
“Lower for longer has become the new mantra in the industry,” said Daniel Yergin, vice chairman of IHS Markit and a longtime oil-market watcher. “People are regearing themselves to a new price level and $US50 to $US60 seems acceptable to most.”
To be sure, this new range is far from comfortable for some countries and companies, particularly in the services sector, which continue to struggle. Venezuela and its oil-fuelled economy have collapsed, and others, like Iraq, are still facing economic challenges.
Overnight, oil prices edged lower, with Brent down 1 per cent, to $US46.91 a barrel, and US crude was off 1.2 per cent, to $US44.20.
But for others the new level is a relief after a combination of booming US shale output and Saudi Arabia’s continued pumping sank crude to decade-low levels of under $US30 early last year.
Those US drillers have led the way in adapting to the lower price. Before the bust, producers often needed oil at $US80 to $US85 a barrel to break even.
Shale producers operating in a number of fields can break even at $US50 to $US60 oil today, according to oil-and-gas data firm Rystad Energy. There are a handful of companies that have learned to make money on wells at $US40 oil.
When the oil price began to fall, Bryan Sheffield, chief executive of Parsley Energy Inc. doubted his Austin, Texas-based company would pull through.
“In year one, I wasn’t sure we were going to survive. We went from $US17 to $US11 in like three days,” he said of a decline in share price at one point in 2014.
Since the start of 2015, in the US, 105 producers and 120 oil-field-service companies have filed for bankruptcy, according to Haynes & Boone LLP. In a calmer environment, there might be one or two bankruptcies of note among oil and gas producers a year and a few more among smaller services companies.
US shale drillers persevered by focusing on their best acreage and making technological improvements, such as drilling super-size wells with more sand to gain savings via economies of scale.
Parsley repeatedly sold shares to raise cash, bolstering its balance sheet and allowing it to make acquisitions in the Permian Basin, a drilling field in West Texas that has become one of the most economic places in the US to operate, where producers can make money on wells even at low oil prices.
Now, Mr Sheffield said Parsley can continue to expand even if oil drops down to $US40 a barrel.
Big oil, too, is settling in for an extended period of cheap crude.
Chevron Corp, Royal Dutch Shell, Exxon Mobil and BP have all indicated they will be able to generate enough cash at $US60 a barrel to cover spending and shareholder payouts this year, a major focus for investors worried about the safety of dividends. At $US50 a barrel, the picture is more mixed. But the companies say they are focused on living within their means at even this price.
In the first quarter of 2017, many big oil companies posted their highest profit in over a year, and investments are picking up again as cost-cutting efforts begin to pay off.
BP spent most of this decade retrenching in the wake of its fatal blowout in the Gulf of Mexico in 2010 and as the oil price skidded lower, but despite weaker crude prices the UK-based company is now preparing for a period of strong growth. It is planning to add 800,000 barrels a day of new production by 2020. Last week, BP said it plans to spend $US6 billion with partner Reliance Industries to develop gas projects offshore India.
“Across the business we are firing on all cylinders,” BP Chief Executive Bob Dudley told investors at the company’s annual meeting last month.
Others are also stepping up activity. On Friday, Exxon and its partners announced a $US4.4 billion project to develop one of the largest oil finds in the last decade off the coast of Guyana.
Shares in Shell and Exxon are trading at or just below the levels of much of 2011 to 2014, when oil prices were consistently over $US100 a barrel, showing that investors, too, believe big oil companies can handle the lower prices. Companies have driven down costs by squeezing suppliers and contractors, trimmed less profitable projects and tackled a once spendthrift culture.
This is all a big change from just three years ago.
In 2013, Saudi Arabia’s then oil minister, Ali al-Naimi, declared $US100 a barrel a “reasonable price” for consumers and producers. Now, many people in the oil industry don’t even want to see that price again, some analysts say. That is because high oil prices triggered a big investment boom that fuelled a global supply glut and crashed the market.
In Iraq, the once-booming oil town of Basra is now dotted with half-finished construction projects and motorways that go nowhere, stalled as the oil price plummeted. In Peace River, Alberta, Canada, the promise of a $US2 billion new Shell oil facility was expected to double the population of the town. The project never happened.
Cheap oil also helps the economies of major consumers such as the US and Europe. US motorists had logged a record number of miles in the year till March, according to the Federal Reserve Bank of St. Louis.
“For oil, $US50 to $US60 is a sweet spot both for consumers and for producers,” said Rob Thummel, who manages energy assets for Tortoise Capital Advisors.
While prices are trading below that level — in part because of drillers’ success in adapting — it is a range that has persisted for much of this year and that analysts expect to last.
Over the past year, analysts have steadily downgraded their expectations for oil prices. In The Wall Street Journal’s May survey, analysts predicted Brent would average $US59 a barrel next year, down from $US68 in the survey a year earlier. For 2019, the analysts now see Brent at $US60 a barrel, down from a prediction of $US76 last May.
The adaptability of shale producers is key. As the price heads higher, they can open up the taps, sending oil back down and ensuring a range-bound price.
The oil industry may also be wrong and prices may still fall. A slowdown in China, the world’s second-biggest oil consumer, could hit demand. On the supply side, OPEC and other producers could abandon their agreement to cap output.
But the oil industry is feeling better about itself. At this year’s big gathering, Houston’s CERAWeek conference, the mood was palpably lighter, said BP’s Mr. Dudley. “I don’t think I heard anyone laugh last year at anything,” he said.
“It feels like we’re heading into a balance point here,” he said.
With Sarah Kent, Erin Ailworth and Sarah McFarlane
Dow Jones Newswires

Crude Oil: A Low-Risk Trade To $50 Is In The Cards

Seeking Alpha

by: Adam Mancini
Adam Mancini

Current crude prices may represent an attractive long opportunity for both short and long-term investors, however, investors should wait for a key fundamental and technical signal first.

A continuation of the positive weekly EIA inventory report trend established in early February (and the verification the bearish previous two reports were anomalous) is one key fundamental signal.

Rising money manager short-positioning could set up a short-covering cycle, and investors should consider going long on a close above the 7 day exponential moving average.

While many oil bulls seem to focus on the extreme negative sentiment in the oil market and blame this for oil’s underperformance, the fact is current prices are fully justified by current inventory levels. In my previous article, I shared this chart, which compares current U.S. commercial crude (excluding SPR) levels with 5-year averages.

Currently oil inventories are sitting at about 107 million barrels above the 5-year average (as of the report for the week ending June 9th). For the week ending February 12th, 2016 (the week when WTI prices bottomed at $26 per barrel), inventory levels were 108 million barrels above the 5-year average, virtually the same as they are today.

It is for this reason that oil bulls will likely need to be patient for a return back to $60+ oil prices, as inventories will likely need to break down below the 80 million barrels above the 5-year average level. This has been the point that inventories have been stubbornly stuck above.

Bulls need to be patient for $60 oil, but a move to $50 near-term is likely

A trade back to $50 in the near-term seems probable. From a fundamental perspective, this will most likely require a clear continuation of the trend seen in the chart above that started in early February. Since the oil market is focused on gasoline/refined products as well as crude, it is more helpful to look at weekly total petroleum build/draws versus the 5-year average.

Crude Oil Futures – Weekly Outlook: May 29 – June 2

© Reuters.  Oil prices rebound on Friday, but still settle lower for the week© Reuters. Oil prices rebound on Friday, but still settle lower for the week

Investing.com – Oil futures settled higher on Friday, rebounding from the prior session’s near 5%-drop as traders continued to digest the latest extension of production cuts from OPEC and some non-OPEC members.

The U.S. West Texas Intermediate crude July contract tacked on 90 cents, or around 1.9%, to end at $49.80 a barrel by close of trade Friday. It touched a two-week low of $48.18 earlier in the session.

For the week, prices of the U.S. benchmark pared their losses to less than 2%, after sinking roughly 4.8% on Thursday.

Elsewhere, on the ICE Futures Exchange in London, Brent oil for July delivery added 69 cents to settle at $52.15 a barrel by close of trade, after hitting a daily trough of $50.71, a level not seen since May 12.

For the week, London-traded Brent futures recorded a loss of $1.70, or roughly 2.7%.

Oil prices tumbled on Thursday as the extension of output curbs by OPEC and other producing countries disappointed investors who had hoped for larger cuts, leading to the biggest daily percentage slide in crude prices since early March.

At Thursday’s meeting in Vienna, the Organization of the Petroleum Exporting Countries and some non-OPEC producers agreed to extend supply cuts of 1.8 million barrels per day until the end of the first quarter of 2018.

While OPEC’s move had been widely expected, some oil market investors had hoped producers would agree to longer or deeper cuts to drain a global glut of crude supplies.

The cartel next meets in November.

So far, the production-cut agreement has had little impact on global inventory levels due to rising supply from producers not participating in the accord, such as Libya and Nigeria, and a relentless increase in U.S. shale oil output.

Data from energy services company Baker Hughes showed on Friday that U.S. drillers last week added rigs for the 19th week in a row, the second-longest such streak on record, implying that further gains in domestic production are ahead.

The U.S. rig count rose by 2 to 722, extending an 11-month drilling recovery to the highest level since April 2015.

Elsewhere on Nymex, gasoline futures for June gained 3.3 cents, or about 2.1% to end at $1.642 on Friday. It closed down around 0.6% for the week.

June heating oil added 1.2 cents to finish at $1.563 a gallon. For the week, the fuel declined roughly 1.2%.

Natural gas futures for July delivery rose 3.5 cents to settle at $3.310 per million British thermal units, up 1.1% for the session but about 0.6% lower for the week.

In the week ahead, oil traders will eye fresh weekly information on U.S. stockpiles of crude and refined products on Wednesday and Thursday to gauge the strength of demand in the world’s largest oil consumer.

The reports come out one day later than usual due to the Memorial Day holiday in the U.S. on Monday.

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

Monday, May 29

Markets in the U.S. will remain closed for Memorial Day.

Wednesday, May 31

The American Petroleum Institute, an industry group, is to publish its weekly report on U.S. oil supplies.

Thursday, June 1

The U.S. Energy Information Administration is to release weekly data on oil and gasoline stockpiles.

The U.S. government is also set to produce a weekly report on natural gas supplies in storage.

Friday, June 2

Baker Hughes will release weekly data on the U.S. oil rig count.

Crude Oil Futures – Weekly Outlook: May 22 – 26

Commodities20 hours ago (May 21, 2017 06:26AM ET)
© Reuters.  Oil prices score a more than 5% advance for the week© Reuters. Oil prices score a more than 5% advance for the week

Investing.com – Oil futures settled at a four-week high on Friday, with prices scoring a weekly gain of more than 5% amid optimism that key producers will extend output cuts beyond an agreed-on June deadline when they meet later this month.

The U.S. West Texas Intermediate crude June contract tacked on 98 cents, or around 2%, to end at $50.33 a barrel by close of trade Friday, the first time it has settled above $50 in more than four weeks. It touched the highest since April 21 at $50.53 earlier in the session.

The U.S. benchmark rose $2.49, or about 5%, on the week, the second straight weekly advance.

Elsewhere, on the ICE Futures Exchange in London, Brent oil for July delivery added $1.10 to settle at $53.61 a barrel by close of trade, after hitting a daily peak of $53.82, a level not seen since April 19.

For the week, London-traded Brent futures recorded a gain of $2.77, or roughly 5.2%.

Oil ministers from the Organization of Petroleum Exporting Countries and other major producing countries will meet in Vienna on May 25 to decide whether to extend their current production agreement beyond a June 30-deadline.

In November last year, OPEC and 11 other non-OPEC producers, including Russia, agreed to cut output by about 1.8 million barrels per day between January 1 and June 30.

Most market analysts expect the oil cartel to extend output cuts for a further nine months until March 2018, instead of six months as previously expected.

There is also talk that OPEC is looking at the option of deepening current production cuts, but it is not clear whether there would be support for that.

So far, the production-cut agreement has had little impact on global inventory levels due to rising supply from producers not participating in the accord, such as Libya, and a relentless increase in U.S. shale oil output.

Data from energy services company Baker Hughes showed on Friday that U.S. drillers last week added rigs for the 18th week in a row, the second-longest such streak on record, implying that further gains in domestic production are ahead.

The U.S. rig count rose by 8 to 720, extending an 11-month drilling recovery to the highest level since April 2015.

Elsewhere on Nymex, gasoline futures for June gained 4.6 cents, or about 2.9% to end at a four-week high of $1.652 on Friday. It closed up around 4.8% for the week amid easing concern over lackluster demand.

June heating oil added 3.7 cents to finish at $1.582 a gallon. For the week, the fuel tacked on roughly 6%.

Natural gas futures for June delivery rose 7.4 cents to settle at $3.256 per million British thermal units, up 2.3% for the session but about 4.9% lower for the week.

In the week ahead, market participants will focus on the Organization of Petroleum Exporting Countries highly-anticipated meeting on Thursday to see whether major producers plan to extend their current production-cut agreement.

Meanwhile, oil traders will eye fresh weekly information on U.S. stockpiles of crude and refined products on Tuesday and Wednesday to gauge the strength of demand in the world’s largest oil consumer.

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

Tuesday, May 23

The American Petroleum Institute, an industry group, is to publish its weekly report on U.S. oil supplies.

Wednesday, May 24

The U.S. Energy Information Administration is to release weekly data on oil and gasoline stockpiles.

Thursday, May 25

Major global oil producers are due to meet in Vienna in order to decide on extending their current output-cut deal.

The U.S. government is to produce a weekly report on natural gas supplies in storage.

Friday, May 26

Baker Hughes will release weekly data on the U.S. oil rig count.

Crude Oil Futures – Weekly Outlook: May 1 – 5

Seeking Alpha

Oil futures settled a bit higher on Friday, but still registered a weekly and monthly loss as signs of further gains in U.S. crude output and doubts over whether OPEC will extend output cuts at its May meeting pressured prices.

The U.S. West Texas Intermediate crude June contract tacked on 36 cents, or around 0.7%, to end at $49.33 a barrel by close of trade Friday. It fell to its lowest since March 28 at $48.20 on Thursday.

The U.S. benchmark lost 35 cents, or almost 0.6%, on the week. For April, it fell around 3%, the second straight monthly decline.

Elsewhere, on the ICE Futures Exchange in London, Brent oil for July delivery ticked up 23 cents to settle at $52.05 a barrel by close of trade. The global benchmark sank to $51.01 a day earlier, a level not seen since March 27.

For the week, London-traded Brent futures recorded a loss of 38 cents, or nearly 0.5%. The benchmark ended about 2% lower for the month.

Crude has been under pressure in recent weeks amid fears that an ongoing rebound in U.S. shale production is derailing efforts by other major producers to rebalance global oil supply and demand.

U.S. drillers last week added rigs for the 15th week in a row, data from energy services company Baker Hughes showed on Friday, implying that further gains in domestic production are ahead.

The U.S. rig count rose by 9 to 697, extending an 11-month drilling recovery to the highest level since August 2015. The relentless increase in U.S. output has overshadowed pledged output cuts by major producers.

In November last year, OPEC and other producers, including Russia agreed to cut output by about 1.8 million barrels per day between January and June, but so far the move has had little impact on inventory levels.

A final decision on whether or not to extend the deal beyond June will be taken by the oil cartel on May 25.

Saudi Energy Minister Khalid al-Falih said on Friday that it was important to try and agree on an extension of a global oil cuts deal into the second half of the year with both OPEC and non-OPEC members.

Crude Oil Prices Extend Gains as G7 Grapples with Syria Crisis

Apr 11, 2017

Fundamental analysis, economic and market themes

Crude oil prices continued to push upward as US Secretary of State Rex Tillerson took a tougher line on the conflict in Syria at a meeting with his G7 counterparts. He said the US will “[hold] to account any and all who commit crimes against the innocents,” stoking fears of a deepening crisis that may disrupt supply flow.

The sit-down extends for another day and traders will probably continue to monitor emerging commentary with great interest. Tillerson travels to Russia immediately thereafter and worries about the outcome of a diplomatic showdown may keep prices elevated.

Meanwhile, gold prices marked time as Fed Chair Janet Yellen carefully side-stepped opportunities to dislodge status-quo policy expectations in a closely-watched speech at the University of Michigan. From here, a lull in top-tier economic event risk puts geopolitics front and center.

The yellow metal rallied as risk aversion swept the markets after last week’s surprise US missile strike on Syria, threatening Fed rate hike prospects. Signs of deepening crisis may weigh on sentiment anew, making for more of the same. Needless to say, de-escalation may put this dynamic into reverse.

What will drive crude oil and gold prices in the next 3 months? See our forecasts to find out!

GOLD TECHNICAL ANALYSISGold prices remain locked in a range below trend-defining resistance in the 1263.87-65.66 area (February swing high, trend line, 50% Fibonacci expansion). Negative RSI divergence hints that upside momentum is ebbing and a turn lower may be ahead. A break below the 1241.20-49.01 region (range floor, 38.2% Fib) exposes 1218.90, an inflection point in play since mid-January. Alternatively, a move above resistance targets the 61.8% level at 1282.31.

Crude Oil Prices Extend Gains as G7 Grapples with Syria Crisis

Chart created using TradingView

CRUDE OIL TECHNICAL ANALYSISCrude oil prices continued to push higher as expected having cleared resistance at 52.04, the 38.2%Fibonacci expansion. From here, a daily close abovethe 50% levelat 53.57 targets the 55.10-21 area (January 3 high, 61.8% Fib). Alternatively, a reversal back below 50.04 exposes the 23.6% expansion at 50.14 anew.

Crude Oil Prices Extend Gains as G7 Grapples with Syria Crisis

Chart created using TradingView

— Written by Ilya Spivak, Currency Strategist for DailyFX.com

Iraq to boost crude oil production

ABC News

Minister: Iraq to boost crude oil production by year’s end

Iraq’s oil minister said on Sunday that his country plans to increase daily crude oil production to 5 million barrels by the end of this year, up from the current rate of about 4.4 million barrels per day, to secure sorely needed cash for its ailing economy.

Iraq, where oil revenues make up nearly 95 percent of the budget, has been reeling under an economic crisis since 2014, when oil prices began their descent from a high of above $100 a barrel. The Islamic State group’s onslaught, starting in 2014, has exacerbated the situation — forcing Iraq to divert much of its resources to a long and costly war.

Addressing an energy conference in Baghdad, Oil Minister Jabar Ali Al-Luaibi didn’t give details on which of the country’s oil fields would supply the increased output.

Late last year, Iraq joined a deal by OPEC and non-OPEC members to lower production for six months by 1.8 million barrels a day in order to prop up global oil prices. The mutual production decrease began on Jan. 1. Iraq’s share in the deal is to reduce output by 210,000 barrels a day to 4.351 million barrels.

“There are positive elements in that deal and we achieved a lot of its targets,” al-Luaibi told reporters on the sideline of the conference. “Work and cooperation are underway … to reach the 1.8 (million barrels a day) reduction,” he added, without divulging whether Iraq is going to support an extension to that deal.

OPEC Secretary General, Mohammed Barkindo, said the compliance among the participants was 86 percent in January and 94 percent in February. Barkindo told reporters that OPEC members would consider whether to extend the production decrease agreement at a meeting next month.

The deal propped up the crude price to around $50 per barrel.

Iraq holds the world’s fourth-largest oil reserves. This year, it added 10 billion barrels, bringing its total reserves up to 153.1 billion barrels.

Al-Luaibi also said that more 15 billion barrels are planned to be added by 2018.

Iraq’s 2017 budget stands at about 100.67 trillion Iraqi dinars, or nearly $85.17 billion, running with a deficit of 21.65 trillion dinars, or about $18.32 billion. That’s based on an estimated oil price of $42 per barrel and daily export capacity of 3.75 million barrels.

Iraq is also grappling with a major humanitarian crisis. The U.N. estimates that more than 3 million people have been forced from their homes since 2014. It also faces growing dissatisfaction among residents of areas recaptured from IS who have had their properties demolished and suffer from scarce public services.

Oil prices finished slightly higher Friday, but logged their third weekly loss in a month.

5 key signatories to the OPEC output deal meet in Kuwait on Sunday

Reuters
Comments from Saudi Arabia are giving oil prices a bump higher on Friday
By

MyraP. Saefong

Markets/commodities reporter

SaraSjolin

Markets reporter

Oil prices finished slightly higher Friday, but logged their third weekly loss in a month.

Traders continued to weigh signs of OPEC-led cutbacks in global crude production ahead of a meeting of oil producers this weekend, against data pointing to the likelihood of further gains in U.S. output.

May West Texas Intermediate crude CLK7, +0.92%  rose 27 cents, or 0.6%, to settle at $47.97 a barrel on the New York Mercantile Exchange. It touched intraday highs above $48 early Friday following news that Saudi Arabia said it cut oil exports to the U.S. in March by around 300,000 barrels a day.

For the week, May WTI oil futures saw a loss of about 1.7% from the week-ago settlement of $48.78 for the April contract, which was the front month at the time. The May contract itself lost 2.7% for the week, according to FactSet data.

May Brent crude LCOK7, +0.81%  added 24 cents, or 0.5%, to $50.80 a barrel—for a weekly loss of about 1.9%.

For the session, “oil managed to rebound not because of an uptick in buyer interest, but because of book-squaring into this weekend’s OPEC gathering,” Tyler Richey, co-editor of the Sevens Report, told MarketWatch.

Five representatives of the countries that signed up to the output agreement—Kuwait, Algeria, Venezuela, and non-OPEC nations Russia and Oman—will meet in Kuwait on Sunday to review the current level of compliance. Most members of the Organization of the Petroleum Exporting Countries are adhering to their pledges to make cuts, but data suggest not all non-OPEC producers are sticking to their quotas.

If OPEC says ‘something crazy while electronic markets are closed between now and Sunday night, it could cause futures to gap higher at next week’s open.’

Tyler Richey, Sevens Report

“There is no question that OPEC is losing its grip on the market, but if they say something crazy while electronic markets are closed between now and Sunday night, it could cause futures to gap higher at next week’s open,” Richey said.

But then there’s the U.S., which isn’t part of the agreement.

“OPEC has done their part, but U.S. inventory data is still rising, keeping the lid on the oil price,” said Naeem Aslam, chief market analyst at Think Markets.

Data on the number of active U.S. oil rigs from Baker Hughes BHI, -0.29%  released Friday revealed a rise of 21 to 652 rigs this week—suggesting the likelihood of a rise in domestic production to come. The oil rig count has climbed every week this year so far, except for one.

Oil prices have been under pressure for most of the week, as U.S. stockpiles hit a record, based on weekly data from the EIA going back to 1982.

Read: Past oil spending could make for glut next year: Goldman Sachs

Also see: Explaining why some say Keystone will create thousands of jobs, and others say 35

Elsewhere in the energy spectrum, gasoline for April RBJ7, +1.34%  settled up 1% at $1.605 a gallon, to end the week up 0.4%, while April heating oil HOJ7, +1.12%  added 0.5% at $1.498 a gallon, down about 0.7% for the week.

Read: Gasoline prices notch smallest price move in 8 years

Natural gas for April NGJ17, +0.98%  added 0.8% to $3.076 per million British thermal units—settling about 3.4% higher for the week.

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

Crude supplies topped 518 million barrels last week: EIA

Shutterstock
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.

Crude Oil Futures – Weekly Outlook: November 7 – 11

© Reuters.  Oil futures post nearly 10% weekly drop© Reuters. Oil futures post nearly 10% weekly drop

Investing.com – Oil futures tumbled to multi-month lows on Friday and booked their biggest weekly loss in almost a year amid mounting skepticism over the implementation of a planned deal by OPEC to limit production.

On the ICE Futures Exchange in London, Brent oil for January delivery fell to a session low of $45.08 a barrel, a level not seen since August 11. It was last at $45.58 by close of trade Friday, settling down 77 cents, or 1.66%.

For the week, it logged a decline of $4.13, or 8.3%, the biggest weekly loss since the middle of January, amid fading expectations of a coordinated production cut among major global oil producers.

Prices fell sharply on Friday after Reuters, citing an OPEC source, reported that Saudi Arabia threatened to raise its oil production at a meeting of OPEC experts last week if Iran refused to cap its output.

A short time later, Bloomberg News reported that OPEC Secretary General Mohammed Barkindo denied that the Saudis made the threat.

OPEC reached an agreement to cap output to a range of 32.5 million to 33.0 million barrels per day in talks held in Algeria in late September. However, the 14-member oil group said it won’t finalize details on individual output quotas until its next official meeting in Vienna on November 30.

The possibility that producers could walk away empty-handed from the November meeting looms large after Iraq, Iran, Nigeria and Libya all signaled they might not take part in the proposed production cut deal. Russia’s unclear stance is also fueling uncertainty.

Elsewhere, on the New York Mercantile Exchange, crude oil for delivery in December slumped 59 cents, or 1.32%, to end the week at $44.07 a barrel. The contract dropped to $43.57 earlier, the lowest level since September 20.

Prices stayed lower after oilfield services provider Baker Hughes said late Friday that the number of rigs drilling for oil in the U.S. last week rose by 9 to 450, resuming its rise following its first dip in roughly four months in the previous week.

New York-traded oil futures lost $4.63, or 9.5%, on the week, as investors reacted to a record weekly surge in U.S. crude inventories.

The U.S. Energy Information Administration said that crude oil stockpiles rose by a whopping 14.4 million barrels to 482.6 million last week, which the EIA considered to be “historically high levels for this time of year”.

In the week ahead, politics are expected to overshadow market fundamentals, with most of the focus falling on Tuesday’s U.S. Presidential Election.

Meanwhile, market participants will eye fresh weekly information on U.S. stockpiles of crude and refined products to gauge the strength of demand in the world’s largest oil consumer.

Oil traders will also keep an eye out for monthly reports from the International Energy Agency and the Organization of Petroleum Exporting Counties on Thursday and Friday respectively for fresh supply-and-demand signals.

In addition, investors will continue to pay close attention to comments from global oil producers to gauge their readiness on freezing or cutting output.

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

Tuesday, November 8

The American Petroleum Institute, an industry group, is to publish its weekly report on U.S. oil supplies.

Wednesday, November 9

The U.S. Energy Information Administration is to release weekly data on oil and gasoline stockpiles.

Thursday, November 10

The International Energy Agency will release its monthly report on global oil supply and demand.

Friday, November 11

The Organization of Petroleum Exporting Counties will publish its monthly assessment of oil markets.

Baker Hughes will release weekly data on the U.S. oil rig count.