Major oil-producing nations are pumping at full tilt ahead of their pledge to reduce output later this month, a big reason why the oil market has given up all its recent gains.
The Organization of the Petroleum Exporting Countries has ramped up production to record levels beyond 33.5 million barrels a day, according to S&P Global Platts.
Russia has also added about 500,000 barrels a day of output in the last two months, while the combined production of Libya and Nigeria brought another 500,000 barrels of new supply, according to the investment bank Simmons & Company International.
That rising crude production has been pummeling U.S. oil prices, which are down nearly 14% in less than three weeks. Prices were down 0.8% at $44.56 on Tuesday morning. The selloff cancels out the big rally that followed an announcement in late September that OPEC members had agreed to a deal to cut crude production for the first time in eight years. Russia has also talked of joining the agreement.
Now, some analysts say that the rising output raises questions about whether the oil-producing nations are serious about reaching a deal to limit output.
“They are addicted to producing,” said Ric Navy, senior vice president for energy futures at brokerage R.J. O’Brien & Associates LLC.
Production increased so much in October that even OPEC’s originally proposed cuts would merely keep output in line with estimates from before the announcement, analysts at Goldman Sachs Group said last week.
When OPEC reached a deal, the group had to cut 200,000 to 700,000 barrels a day from its August production levels to drop output to a target of 32.5 million to 33 million barrels a day. After the production increases, the cartel would have to cut another 340,000 barrels a day from October levels to meet that goal.
New projects coming online from outside of OPEC are also likely to blunt the impact of any cut, Goldman Sachs added.
ClipperData, which tracks oil ships, shows a record 48.4 million barrels a day of seaborne exports in October, up nearly 13% from a year ago. That is likely to keep markets glutted and stockpiles bloated as buyers receive those cargoes in the weeks to come, analysts said.
The excess supply is making its way into the U.S., where imports of crude have climbed to a four-year high at nine million barrels a day. It pushed U.S. stockpiles to their biggest weekly increase in 34 years of government record-keeping, up 14.4 million barrels for the week ending Oct. 28, according to the U.S. Energy Information Administration.
That figure greatly exceeded the one-million-barrel increase energy analysts had anticipated, and led an executive at Mizuho Securities USA to declare it possibly “the most bearish report of all time” for the oil market.
Oil’s retreat has reinforced doubts about crude prices enjoying a sustained rebound. A survey of 14 investment banks by The Wall Street Journal predicts that oil prices will stay below $60 a barrel in 2017, a year when many of the same banks had predicted oil prices would rise above $70. Even OPEC now expects an increase to just $60 a barrel by 2020, $20 a barrel less than what it had predicted just a year ago, it said Tuesday.
The price slump is also reverberating through the stock market, where energy has gone from among the best-performing sectors to the worst. S&P 500 energy companies are up a market best 14% year to date, but gave up more than 2% in the last week alone, trailing only telecommunications and information technology as the worst sectors.