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Oil Down on Signs US Crude Stockpiles Expanded

Oil retreated toward $38 a barrel after a U.S. industry report signaled a surprise jump in crude inventories, raising fresh concerns about excess supply.

Futures dropped 1.8% in New York, erasing almost all of their gains from the previous session. The American Petroleum Institute reported that stockpiles expanded by 8.42 million barrels last week, according to people familiar with the data. If confirmed by government figures on Wednesday, it would be the largest build since the end of April. The market shrugged off a report that armed men forced output to halt again at Libya’s biggest oil field.

Oil is still recovering from the virus-driven demand crash and swollen stockpiles that pushed prices below zero in April. While lockdowns have been relaxed in parts of the U.S., lifting consumption from its lows, there are still concerns that a second wave of infections and a rise of drilling could derail any rebound and expectations of inventory draws.

The U.S. inventory figure reported by API was “a monster” and places the staggering amount of oil in stockpiles back into focus, Jeffrey Halley, a senior market analyst for Asia Pacific at Oanda, said by phone. “The market has been ignoring U.S. oil inventories for a while. They should have been a bit concerned a lot sooner.”

Along with official crude stockpile data, investors are turning focus to a meeting by U.S. Federal Reserve policymakers Wednesday for signs of how plans to help the U.S. economy recover from its coronavirus-induced recession may impact demand for oil.

“It looks like we are in for a bit of consolidation until we get the Fed meeting out of the way,” Halley said.


West Texas Intermediate for July delivery fell 70 cents to $38.24 a barrel on the New York Mercantile Exchange as of 2:08 p.m. Singapore time
Brent for August settlement lost 1.4% to $40.62 on the ICE Futures Europe exchange after gaining 0.9% in the previous session
The prompt timespread for Brent expanded to 36 cents a barrel in contango, the widest since May 28
Supplies of U.S. distillates, which include diesel, rose by 4.27 million barrels last week, while stockpiles at the storage hub of Cushing, Oklahoma, fell by 2.29 million barrels, the API reported. The Energy Information Administration is expected to report nationwide crude inventories dropped by 1.85 million barrels, according to a Bloomberg survey.

The market is also watching how closely some members of the OPEC+ coalition stick to supply curbs after being called out for non-compliance when they were extended over the weekend. The head of Nigeria’s state oil company said the country will implement all of its production cuts agreed with OPEC+ by mid-July at the latest. Another laggard — Iraq — has also pledged to meet its commitments.

Meanwhile, the chaos engulfing another OPEC member continued, with the Sharara field in southwestern Libya stopping production after armed men entered the site Monday and told employees to end activities.

Though operations were briefly allowed to resume, according to people with knowledge of the situation, the group halted output again for the second time in a day, the Tripoli-based National Oil Corp. said on its Facebook page. The NOC has declared force majeure on loadings from the field.

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Texas Upstream Gauge Sets Records

The Texas Alliance of Energy Producers reported Wednesday that its monthly measure of growth rates and cycles in the state’s upstream oil and gas economy – the Texas Petro Index (TPI) – shows record declines across nearly all indicators from March to April.

“The Texas upstream oil and gas economy was already in a state of decline when COVID-19 came along, with drops in the number of working rigs and industry employment, but the rate of decline has obviously accelerated sharply in March and April,” Karr Ingraham, the Alliance’s petroleum economist and the TPI’s creator, commented in a written statement emailed to Rigzone.

Based at 100.0 in Jan. 1995, the TPI tracks indicators such as price, rig count, drilling permits, well completions and employment, the Alliance stated. The organization noted the index fell from 181.9 to 171.0 from March to April. It observed the 10.9-point drop represents the second-largest monthly decline on record, trailing only the 11.0-point decrease from Sept. to Oct. 2015 – amid the 2014 to 2016 oil industry downturn.

Other findings from the Alliance include:

The April 2020 TPI represents a 19.7-percent year-on-year drop from the 212.8 figure for April 2019.
The index registered a recent cyclical peak of 213.8 in Feb. 2019; through April 2020, the TPI has declined for 14 consecutive months.
Texas’ crude oil production fell by an estimated 235,000 barrels per day from March to April of this year, marking the largest monthly decline on record.
The state lost an estimated 25,800 upstream jobs from March to April – the largely monthly drop on record in terms of number and percentage of jobs lost.
In April, just 456 original drilling permits were issued – Texas’ lowest monthly level since at least Jan. 1994, the first year of data collection for the TPI.
“The worst of the demand contraction is clearly behind us at this point, and hopefully we’ve seen the worst of the crude oil price environment in April as well,” Ingraham continued. “However, the fallout will continue for some time with more to come in the way of employment loss and idled production capacity, and the Texas Petro Index is certain to continue its decline in the coming months.”

More detailed data tied to the TPI appear in this Alliance document.

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NEWS Kuwait Ceases Hiring Foreign Workers for Oil Industry

Kuwait will no longer hire expatriates for jobs in its oil sector as the OPEC member moves to reduce the number of foreigners in the country.

Non-Kuwaiti nationals won’t be hired at Kuwait Petroleum Corp., the main state-run energy producer, and its subsidiaries for 2020-2021, Kuwait News Agency reported, citing Oil Minister Khaled Al-Fadhel.

Third-party contracts with expatriates, through which some of them are currently employed, will be reduced, the minister said.

Kuwait’s prime minister last week said the country’s expatriate population should be more than halved to 30% of the total, as the coronavirus pandemic and a slump in oil prices send shudders through Gulf economies. Foreigners account for nearly 3.4 million of Kuwait’s 4.8 million population, and “we have a future challenge to redress this imbalance,” Sheikh Sabah Al-Khalid Al-Sabah said.

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Record US Crude Stockpiles Reveal Cracks in Oil Market Recovery

Swelling U.S. oil stockpiles are signaling that a difficult path lies ahead for OPEC and its allies who are trying to stabilize the market with record output cuts.

Just weeks after American explorers began shutting in wells in the wake of a slump in demand, a recent recovery in crude is prompting some producers to turn the taps back on at a time when a fresh onslaught of the virus challenges pockets across the country.

A month into the state’s reopening, Florida this week reported the most coronavirus cases of any seven-day period. In Texas, hospitalizations on Tuesday jumped to the highest since the pandemic emerged, rising for a third consecutive day. California’s hospitalizations are at their highest since May 13.

Those gains in cases are leading to concern that oil’s rebound may unwind if governments implement lockdowns again. The OECD is forecasting a sharp contraction in the global economy this year that could get worse if there’s a second wave of virus infections.

“Demand isn’t coming back fast enough, and supply is coming down more slowly than the market needs,” said Rob Haworth, senior investment strategist at U.S. Bank Wealth Management in Seattle.

American oil stockpiles reached 538.1 million barrels last week, the highest level in data going back to 1982, according to Energy Information Administration data, even though American production has fallen by at least 2 million barrels a day since mid-March.

In the U.S., more excess oil is being sent for storage to the Strategic Petroleum Reserve, which rose by 2.2 million barrels last week to the highest level since November 2018.

Rising inbound crude shipments drove stockpiles to a record in the Gulf Coast, with the region accounting for the lion’s share of the inventory increase. Net petroleum imports stand at the highest since August.

“The net import number really drove the build,” said Brian Kessens, a portfolio manager at Tortoise Capital Advisors. “Next week we’d expect to see elevated imports again before they drop, so prices should be range bound for the next week,” he said.

That means investors may see more volatility in U.S. West Texas Intermediate futures, which tumbled as much as 3.1% on Wednesday before ending 1.7% higher in New York at $39.60 a barrel. Global benchmark Brent crude for August settlement added 55 cents to $41.73 on the ICE Futures Europe exchange.

Brighter spots in the EIA report helped buoy prices, notably “gains in diesel and gasoline demand on the week and an increase in refinery crude demand,” said BNP Paribas analyst Harry Tchilinguirian.

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