Oil prices fall admist increasing Saudi output & Asian economic slowdown

Oil Stock Markets

Oil prices fell by more than 1 percent on Monday as supplies from top exporter Saudi Arabia rose and as signs of an economic slowdown in Asia dented the outlook for demand. 

Brent crude oil futures LCOc1 were at $78.16 per barrel at 0316 GMT, down $1.07, or 1.35 percent, from their last close.

U.S. West Texas Intermediate crude futures CLc1 were down 94 cents, or 1.3 percent, at $73.21 a barrel, after rising more than 8 percent last week.

U.S. President Donald Trump wrote in a tweet on Saturday that Saudi Arabia’s King Salman bin Abdulaziz Al Saud had agreed to produce more oil. The White House later walked back on the president’s comments, saying the king said his country can raise oil production if needed.

Saudi Arabia’s output is up by 700,000 barrels per day (bpd) from May, a Reuters survey found on Friday, and close to its 10.72 million bpd record from November 2016, more than making up for disruptions elsewhere within the Organization of the Petroleum Exporting Countries (OPEC).

Voluntary supply cuts by OPEC and some non-OPEC suppliers like Russia have tightened world oil markets since 2017, and unplanned disruptions from Canada to Venezuela and Libya along with upcoming new U.S. sanctions against major exporter Iran have sparked concerns of supply shortfalls.

Despite the apparent supply relief from Saudi Arabia, oil markets remain tense over escalating trade disputes between the United States and other major economies including China, the European Union, India and Canada.

Asia’s main economic hub around China, Japan and South Korea all reported a slowdown in export orders in June amid an escalating trade dispute with the United States.

Trump warned close U.S. allies in an interview that aired on Sunday with a threat to sanction European companies that do business with Iran.

Oil markets are also awaiting the impact of looming U.S. sanctions against major exporter crude Iran.

Oil prices inches down amidst worries Saudi & Russia pumping more crude

Oil prices edged down on Wednesday amid concerns that Saudi Arabia and Russia will pump more crude in the second half of the year in response to falling global crude inventories and rising consumer prices.

Saudi Arabia and Russia have discussed raising OPEC and non-OPEC oil production by 1 million barrels per day (bpd) to counter potential supply shortfalls from Venezuela and Iran.

Brent crude LCOc1 was down 45 cent, or 0.6 percent, at $74.94 a barrel at 0325 GMT, after settling up 9 cents on Tuesday.

U.S. West Texas Intermediate crude CLc1 was down 24 cents, or 0.34 percent, at $66.49 a barrel. It had settled down $1.15.

OPEC-led supply curbs have largely cleared an inventory surplus in industrialized countries, and stocks continue to decline. The Organization of the Petroleum Exporting Countries is due to meet in Vienna on June 22.

Credit Suisse analysts on Tuesday said even if Russia and OPEC producers raise output, they would likely only add an additional 500,000 bpd, which would leave inventories in the most developed countries short of the five-year average by the end of 2018.

Falling share prices and a stronger U.S. dollar index also weighed on oil prices. U.S. stock markets sank more than 1 percent, while the dollar wobbled at a 10-month high against the euro. A stronger dollar makes greenback-denominated commodities more expensive for holders of other currencies.

U.S. oil got some support as U.S. crude inventories likely fell by 1.8 million barrels last week, a preliminary Reuters poll showed on Tuesday. [EIA/S]

Industry group American Petroleum Institute (API) releases its weekly oil data at 2030 GMT, followed by the report by U.S. Energy Department’s Energy Information Administration on Thursday, both delayed a day because of the federal Memorial Day holiday on Monday.

Oil touches multi-year high with tight supply and Iran sanctions

Global Stock Markets

Oil prices hit a 3-1/2-year high on Tuesday, supported by tight supply and planned U.S. sanctions against Iran that are likely to restrict crude oil exports from one of the biggest producers in the Middle East. 

Brent crude oil LCOc1 reached $79.22 a barrel, up 99 cents and its highest since November 2014. By 1100 GMT, Brent was up 90 cents at $79.13. U.S. light crude was 60 cents higher at $71.56 a barrel, also close to its highest since November 2014.

World oil prices have surged by more than 70 percent over the last year as demand has risen sharply but production has been restricted by the Organization of the Petroleum Exporting Countries, led by Saudi Arabia, and other producers including Russia.

Now the United States has announced it will impose sanctions on Iran over its nuclear programme, raising fears that markets will face shortages later this year when trade restrictions come into effect.

In China, the world’s biggest oil importer, refinery runs rose nearly 12 percent in April compared with the same month a year ago, to around 12.06 million barrels per day (bpd), marking the second-highest level on record on a daily basis, data showed on Tuesday.

The tightening market has all but eliminated a global supply overhang which depressed crude prices between late 2014 and early 2017.

OPEC figures published on Monday showed that oil inventories in OECD industrialised nations in March fell to 9 million barrels above the five-year average, down from 340 million barrels above the average in January 2017.

U.S. crude is trading at a hefty discount to Brent, the international marker, thanks to sharp rises in

U.S. production to 10.7 million barrels per day, which has left the American domestic oil market well supplied.

U.S. shale oil production is expected to rise by about 145,000 bpd to a record 7.18 million bpd in June, the U.S. Energy Information Administration said on Monday.

The Permian basin in Texas, the biggest U.S. oil patch, is expected to see output climb 78,000 bpd to a fresh record of 3.28 million bpd.

Oil prices gain on Middle east troubles, but capped by soaring US output

Oil Stock Markets

Oil prices edged up on Tuesday, lifted by tensions in the Middle East, although rising output in the United States and shaky stock markets put a lid on further gains. 

U.S. West Texas Intermediate (WTI) crude futures CLc1 were at $62.31 a barrel at 0128 GMT, up 25 cents, or 0.4 percent, from their previous close. 

Brent crude futures LCOc1 were at $66.26 per barrel, up 21 cents, or 0.3 percent. 

Traders pointed to concerns in the Middle East, where the United States may reimpose sanctions on Iran, as well as tensions between Saudi Arabia and Iran. 

Worries about Venezuela’s tumbling crude production also supported oil markets. 

The International Energy Agency said last week that Venezuela, where an economic crisis has cut oil production by almost half since early 2005 to well below 2 million bpd PRODN-VE, was “clearly vulnerable to an accelerated decline”, and that such a disruption could tip global markets into deficit. 

Falls on global share markets helped cap gains. Markets are under pressure from concerns over a possible trade war between the United States and other major economies, as well as from fears of stiffer regulation as Facebook came under fire following reports it allowed improper access to user data. 

Also looming over oil markets has been surging U.S. crude oil production C-OUT-T-EIA, which has risen by more than a fifth since mid-2016, to 10.38 million barrels per day (bpd), pushing it past top exporter Saudi Arabia. 

Only Russia produces more, at around 11 million bpd, although U.S. output is expected to overtake Russia’s later this year as well. 

Soaring U.S. output, as well as rising output in Canada and Brazil, is undermining efforts by the Middle East dominated Organization of the Petroleum Exporting Countries (OPEC) to curb supplies and bolster prices. 

Many analysts expect global oil markets to flip from slight undersupply in 2017 and early this year into oversupply later in 2018.

Oil rises as Saudi Arabia says producers will cooperate beyond 2018

Oil Stock Markets

Oil prices climbed on Monday, pushed higher by comments from Saudi Arabia that cooperation between oil producers who are currently withholding supplies would continue beyond 2018.

Strong global economic growth and a drop in U.S. drilling activity also supported crude, traders said.
Brent crude futures were at $68.89 a barrel at 0315 GMT, up 25 cents, or 0.4 percent, from their last close. Brent on Jan. 15 rose to $70.37, its highest since December 2014.

U.S. West Texas Intermediate (WTI) crude futures were at $63.61 a barrel, up 24 cents, or 0.4 percent, from their last settlement. WTI climbed to $64.89 on Jan. 16, also its highest since December 2014.

Saudi Arabia, the world’s top oil exporter and de-facto leader of the Organization of the Petroleum Exporting Countries (OPEC), said on Sunday major oil producers were in agreement they should continue cooperating on production after their deal on supply cuts expires this year.

A group of oil producers including OPEC and Russia, the world’s biggest crude producer, started to withhold production in January last year to prop up prices. The deal is set to expire at the end of 2018.

In the United States, declining drilling activity for new oil production further supported crude.
U.S. drillers cut five oil rigs in the week to Jan. 19, bringing the count down to 747, energy services firm Baker Hughes said on Friday.

Despite this, the rig count in 2017 and early this year remains much higher than in 2016, resulting in a 16 percent rise in U.S. production since mid-2016, to 9.75 million barrels per day.
Beyond supplies, strong global economic growth was also supporting oil prices.

In the latest indicator, Japanese manufacturing sentiment in January jumped to an 11-year high, the Reuters Tankan poll showed on Monday, highlighting the optimism driven by nearly two years of economic expansion.

Despite the well supported market, analysts warned oil markets had lost some steam since their peak early last week.

Bernstein Energy said on Monday that oil inventories might start rising soon due to a slowdown in demand which typically happens at the end of the northern hemisphere winter.

Saudi Arabia’s Big Oil Gamble

Oil Stock Markets

With Mohammad bin Salman (MBS) now firmly in power in Saudi Arabia, Aramco’s IPO and fundraising to diversify the kingdom’s economy away from oil will surely become a cornerstone of Saudi policy. This carries a unique set of risks, and it’s not unreasonable to assume that the kingdom’s future heavily depends on the IPO’s success.

The relationship between Saudi Arabia, its oil company and regional geopolitics brings up some interesting questions regarding the exchange where Saudi Aramco will be listed.

This waning influence in oil markets brings up several interesting questions, especially when you consider the possibility of Aramco floating on the NYSE. What will happen to the country’s sovereignty if it is listed on the New York Stock Exchange?

Recently, oil imports to the U.S. fell to their lowest level since the 1990’s, dropping to just 1.77 million barrels. The imports peaked in November, 2005 to almost 14 million barrels. In their World Energy Outlook 2017, the IEA mentioned that the U.S. will overtake Saudi Arabia as the largest oil producer in the world by 2020. U.S. shale production recently hit a high of 9.68 million barrels per day. All of these are signs of a stronger U.S. and an increasingly vulnerable KSA. Russia is also likely to gain influence in the space, after proving resilient in the face of falling oil prices and economic sanctions.

The Saudi government has already slashed its tax rate from 85 percent to 50 percent in order to lure investors. The corruption crackdown seems to be another way of ensuring investors of a more transparent and open country. After the listing, Aramco will be exposed to all the rules and regulations that any other multinational encounters. One of the laws that may threaten Saudi Arabia after a U.S. listing is JASTA (Justice Against Sponsors of Terrorism Act). The act allows U.S. citizens to file lawsuits against nations that may have harmed them, opening Saudi Arabia up to lawsuits for its role in 9/11.

Another issue is how much oil Aramco can actually claim control over. In other privatizations, such as Norway’s Statoil, the state allowed foreign competitors to operate fields in the country. “International oil companies even had ownership in the Norwegian continental shelf,” a Financial Times article quotes Hans Aasmund Frisak, Statoil’s head of government relations.

Saudi officials claim that “production decisions are a sovereign matter that will remain with the government”. Observers are of the view that after the IPO Aramco, like any other oil company, will have to persuade investors before cutting production.

In November, Khalid Al-Falih said that “the government will make sovereign decisions on production and capacity even after a public offering of Saudi Aramco”, reported Anjli Ravli in a Financial Times article. Whether this will become a reality remains to be seen. KSA cannot retire from oil abruptly, as the kingdom’s plan to build a $20 billion plant for converting oil into chemicals shows. Saudi 2.0 will still be attached to oil, but the transition away from being a full oil state is full of dangers.

Saudi Arabia’s future depends on a smooth transition. It’s an ambitious bet from bin Salman—and one that Saudi Arabia can’t afford to lose. There’s no way of knowing if success awaits the Saudis. For now, we wait and watch.

Aramco plans to spend $300 billion over 10 years in upstream oil and gas

Oil Stock Markets

Saudi Aramco plans to spend close to $300 billion over 10 years in upstream oil and gas projects, Chief Executive Amin Nasser said on Monday.

 Speaking at the ADIPEC energy conference in Abu Dhabi, Nasser said: “This is mainly upstream, onshore, offshore and joint ventures in the kingdom and out of the kingdom.”

He also said a decision would hopefully be made soon on the location for the listing of shares in the oil giant.

Crown Prince Mohammad bin Salman said last month that Aramco’s initial public offering, part of an ambitious plan to diversify the Saudi economy beyond oil, was on track to go ahead in 2018.

New Zealand dollar sunk, The euro gained

In late October, the New Zealand dollar sunk to a five-month low of $0.6818 as a change in government unsettled investors. 

The dollar index against a basket of six major currencies was 0.1 percent lower at 94.789 .DXY, staying below a three-month high of 95.150 set in late October. 

It had reached that peak on hopes for enactment of U.S. tax reforms. But recent uncertainty over the fate of the tax plans has weighed on the dollar. 

A U.S. Senate tax-cut bill, differing from one already in the House of Representatives, was expected to be unveiled on Thursday, complicating a Republican tax overhaul push and increasing scepticism on Wall Street about the effort.

The euro gained 0.1 percent to $1.1604 EUR= after touching a 3-1/2-month low of $1.1553 at the week's start. The greenback slipped 0.2 percent to 113.640 yen JPY=. U.S. crude oil futures CLc1 was nearly flat at $56.82 a barrel.

Government data showing a rise in domestic crude production had weighed on oil overnight but rising tensions in the Middle East limited the losses. 

U.S. crude rose to $57.92 on Wednesday, highest since July 2015, as tension flared between Saudi Arabia and Iran, while the Saudi crown prince tightened his grip on power. 

Spot gold XAU= added 0.2 percent to $1,283.45 an ounce. 

The precious metal had risen to a three-week high of $1,287.13 an ounce the previous day as a potential delay in the U.S. tax reform plan was seen moderating the Federal Reserve’s interest rate hikes next year and support non-yielding gold.

Palladium XPD= was 0.1 percent higher at $1,014.25 an ounce. The metal used for auto catalysts has rallied on an expected supply deficit and higher demand in the car market, reaching a 16-year high of $1,019 on Wednesday.

Exclusive: Saudi Aramco IPO on track for 2018 - Saudi crown prince

Saudi Aramco’s initial public offering is on track for next year and the national oil giant could be valued at more than $2 trillion, Saudi Arabia’s Crown Prince Mohammad bin Salman told Reuters in an interview.

The sale of around 5 percent of Aramco next year is a centerpiece of Vision 2030, an ambitious reform plan to diversify the Saudi economy beyond oil which is championed by Prince Mohammad.

Saudi officials have said domestic and international exchanges such as New York, London, Tokyo and Hong Kong have been looked at for a partial listing of the state-run firm. 

A decision on which exchange would secure the offering has still not been made, fuelling market speculation that the IPO could be delayed beyond 2018 or even shelved, amid growing concerns about the feasibility of an international listing.

The crown prince declined to discuss specific details of the IPO, which could be the biggest in history and is expected to raise as much as $100 billion.

Prince Mohammad, 32, has sweeping powers over defense, energy and the economy and is expected to take the final decision about Aramco’s listing venue and the other reforms. 

Investors have long debated whether Aramco could be valued anywhere close to $2 trillion, the figure announced by the crown prince, who wants to raise cash through the IPO to finance investments aimed at helping wean the world’s biggest oil exporting nation off its dependency on crude. 

But Prince Mohammad reiterated that Aramco’s estimated valuation would be about $2 trillion.
Saudi Arabia and three other Arab states have cut ties with Qatar, accusing it of supporting terrorism. Doha denies the accusations. 

Oil extends gains as Saudi pledges export curbs

Oil prices extended gains on Tuesday after Saudi Arabia pledged to curb exports from next month and OPEC called on several members to boost compliance with output cuts to help rein in oversupply and tackle flagging prices. 

Gains were also supported by a warning from Halliburton's executive chairman that the growth in North America's rig count was "showing signs of plateauing," a possible threat to U.S. shale oil production. 

Global benchmark Brent crude for September delivery LCOc1 was up 22 cents, or 0,5 percent, at $48.82 a barrel by 0705 GMT after settling up 1.1 percent in the previous session. 

U.S. West Texas Intermediate (WTI) futures CLc1 were up 23 cents, or 0.5 percent, at $46.57 a barrel. 

In a meeting in St. Petersburg on Monday, the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC producers discussed extending their deal to cut output by 1.8 million barrels per day (bpd) beyond March 2018 if necessary. 

Saudi Energy Minister Khalid al-Falih added his country would limit its crude exports to 6.6 million bpd in August, almost 1 million bpd below the levels of a year ago. 

Nigeria voluntarily agreed to join the deal by capping or cutting its output from 1.8 million bpd, once it stabilises at that level. Nigeria, which has been producing 1.7 million bpd recently, had been exempt from the output cuts. 

OPEC said stocks held by industrial nations had fallen by 90 million barrels over January to June, but were still 250 million barrels above the five-year average, which is the target level for OPEC and non-OPEC.

Russian Energy Minister Alexander Novak said an additional 200,000 bpd of oil could be removed from the market if compliance to OPEC-led deal was 100 percent.

Saudi calls OPEC members to stick to limits, sees oil demand up

OPEC leader Saudi Arabia said on Monday the group would quickly address weak compliance with output cuts by some OPEC states and would monitor rising production from Nigeria and Libya, which have been exempted from the curbs.

OPEC has agreed with several non-OPEC producers led by Russia to cut oil output by a combined 1.8 million bpd from January 2017 until the end of March. But OPEC states Libya and Nigeria were exempted to help them recover from years of unrest. 

The deal to curb output propelled crude prices above $58 a barrel in January but they have since slipped back to a $45 to $50 range as the effort to drain global inventories has taken longer than expected. 

Rising output from U.S. shale producers has offset the impact of the output curbs, as has climbing production from Libya and Nigeria. 

"We must acknowledge that the market has turned bearish with several key factors driving these sentiments," Saudi Energy Minister Khalid al-Falih told a meeting of a committee that monitors the deal between OPEC and non-OPEC states. 

Alongside Saudi Arabia, the committee known as the JMMC includes Russia, Kuwait, Venezuela, Algeria and Oman. It has the power to recommend measures to other producers involved in the pact, depending on market conditions. 

Falih said that weaker compliance with cuts by some OPEC members and a rise in OPEC exports were helping soften prices. 

Saudi Arabia and Kuwait have cut more than they pledged but others, such as the United Arab Emirates and Iraq, have shown relatively weak adherence to the limits.

Exclusive: Saudis to cut August oil exports to lowest level this year - source

Saudi Arabia will cut crude oil shipments to its customers in August by more than 600,000 barrels per day to balance the rise in domestic consumption during the summer, while staying within its OPEC production commitment, a Saudi industry source said.

"There is strong demand for our crude but we are sticking to our OPEC commitments," the source, who is familiar with the kingdom's oil policy, said on Wednesday.

Crude exports for August will fall to their lowest level this year at around 6.6 million bpd, the source added. 

Crude allocations to Asia for August will be reduced by about 200,000 bpd to 3.5 million bpd, while allocations to Europe will be down by around 70,000 bpd at 520,000 bpd. 

Oil majors were allocated some 200,000 bpd less in August at 780,000 bpd. Exports to the United States will be below 800,000 bpd in August, the source said.

Saudi Arabia told the Organization of the Petroleum Exporting Countries its oil production in June rose to 10.07 million bpd, slightly above its OPEC target, mainly due to an increase in domestic crude burning for power during summer. 

The source also cited late May port closures as pushing some cargoes into June, which may have resulted in higher June exports. The source said July oil output would be lower than June, without providing details. 

A joint ministerial committee from OPEC and non-OPEC countries including Saudi Arabia and Russia, the world's biggest oil producers, will meet on July 24 to discuss compliance with a supply-cut pact and review the rise in output from Nigeria and Libya. Both countries were exempted from the production cuts. 

The Saudi source said ministers would discuss several ideas at the meeting and that the recent rise in output from Nigeria and Libya "is not big in a way that should disturb the market".

Dollar hits seven-month low, stocks, oil retreat as caution reigns

Escalating tensions in the Middle East and the coming testimony of the former FBI director, British elections and a European Central Bank meeting all took their toll on oil, the dollar and Asian stocks on Tuesday.

European stocks were headed for a subdued start, with financial spreadbetter CMC Markets expecting Britain's FTSE 100 and France's CAC 40 to open flat. Germany's DAX is predicted to start the day down 0.1 percent.

Oil fell back following a brief recovery after Saudi Arabia and several other Arab states severed ties with Qatar, accusing it of supporting extremism and undermining regional stability.

Stocks in Qatar plunged more than 8 percent overnight to their lowest since January 2016.
U.S. crude was 0.5 percent lower at $47.18 a barrel on Tuesday, after falling 0.55 percent on Monday.

Global benchmark Brent retreated 0.4 percent to $49.26, extending Monday's 1 percent slide.

The dollar index touched a seven-month low ahead of testimony before the U.S. Congress from former FBI director James Comey on Thursday.

There will be intense interest in what Comey might say about his conversations with U.S. President Donald Trump about an investigation into former National Security Advisor Mike Flynn, who was fired for failing to disclose conversations with Russian officials.

The dollar index, which tracks the greenback against a basket of trade-weighted peers, fell to its lowest level since the November U.S. election. At 0524 GMT, it was down 0.2 percent, to 96.611.
The dollar slid 0.5 percent to 109.90 yen on Tuesday, close to the six-week low hit earlier in the session.

News on Monday of U.S. services sector activity slowing in May as new orders tumbled also hit the dollar.

The dollar further came under pressure from a stronger euro, on expectations the European Central Bank will take a less dovish tone than in the past at its Thursday meeting.

Saudi Arabia, Russia push to extend oil output cuts until March 2018

Saudi Arabia and Russia, the world's two top oil producers, agreed on Monday on the need to extend oil output cuts for a further nine months until March 2018 to rein in a global crude glut, pushing up prices.

The timing of the announcement ahead of OPEC's next official meeting on May 25 and the statement's strong wording surprised markets, and the move is expected to go a long way to ensure that other OPEC members and producers who participated in the initial round of cuts fall into line.

In a joint statement that followed an earlier meeting, Saudi energy minister Khalid al-Falih and his Russian counterpart Alexander Novak said they had agreed to prolong an existing deal until March next year.

Saudi, the defacto leader of OPEC, and Russia, the world's biggest producer, together control a fifth of global supplies, but have been spurred into action as crude futures LCOc1CLc1 have languished around $50 per barrel.

Under the current agreement that started on Jan. 1, the Organization of the Petroleum Exporting Countries (OPEC), and other producers including Russia pledged to cut output by almost 1.8 million barrels per day (bpd) during the first half of the year.

While it was broadly expected that OPEC and Russia would agree to extend the cut, the timing and wording of the statement sent crude prices up more than 1.5 percent in Asian trading.

Russia's top producer Rosneft helped prepare the deal and is ready to comply with the extension, according to Russian media.

OPEC, non-OPEC see need to extend supply-cut pact: Saudi governor

OPEC and other countries that agreed to cut crude production are converging on the need to extend the pact beyond June to help to clear a supply glut, Saudi Arabia's OPEC governor said on Friday.

The Organization of the Petroleum Exporting Countries, Russia and other producers agreed last year to curb production by 1.8 million barrels per day (bpd) for six months from Jan. 1.

Oil prices have risen but stockpiles are still high and production from countries that have not agreed to the cut, including the United States, has been rising, keeping crude below the $60 level that OPEC kingpin Saudi Arabia and others would like to see.

A formal decision will be made when OPEC ministers and non-OPEC producers meet in Vienna on May 25.

The Saudi OPEC governor was speaking by telephone from Vienna where he is attending a meeting of OPEC's governing board along with his counterparts from the 13-country OPEC - which accounts for a third of global oil production.

Such meetings are for informal consultations, but they deal with administrative matters and do not decide policy.

Al-Aama said he had accompanied Saudi Energy Minister Khalid Al-Falih on a visit last week to some of the non-OPEC producers that are party to the pact, and "all have expressed their commitment to the deal." Al-Falih was due to visit more countries next week, he said.

Compliance with the cuts has been rising every month, reaching "an impressive 98 percent in March", Al-Aama said. This is higher than OPEC achieved during its last cut in 2009.

All drill, no frack: U.S. shale leaves thousands of wells unfinished

U.S. shale producers are drilling at the highest rate in 18 months but have left a record number of wells unfinished in the largest oilfield in the country – a sign that output may not rise as swiftly as drilling activity would indicate.

Rising U.S. shale output has rattled OPEC's most influential exporter Saudi Arabia and pushed oil prices to a near four-month low on Wednesday. U.S. production gains are frustrating Saudi-led attempts by the world's top oil exporters to cut supply, drain record-high inventories and lift prices.

Investors watch data on the number of rigs deployed in North American oil and gas fields as a
leading indicator for output. But the rising rig count and frenetic drilling activity in the Permian Basin in West Texas is not all about pumping oil.

During the 2014-2016 downturn in global oil prices, the number of wells left incomplete grew as companies shut down rigs, laid off workers and retreated from the fields. When prices picked up, operators were expected to pump the oil from those incomplete wells before spending money on drilling new ones.

Instead, the number of incomplete wells has risen. A record 1,764 wells were left unfinished in the Permian in February, according to U.S. government data going back to December 2013. In February alone, 395 wells were drilled and only 300 completed. That was the highest drilling rate in the Permian in two years.

The surprise surge in unfinished wells indicates that investors, traders and oil market players may need to reinterpret rig count data.

Reuters interviews with more than a dozen well completion service providers, oil and gas lawyers and industry experts show that some operators are drilling because their leases require them to do so within a specified time limit to keep their leases. But they may not be required to actually pump the oil immediately after they have drilled the hole.

Some leases do require firms to produce a minimum volume of oil. On those leases, many firms will frack one well and leave others incomplete. That allows them to meet their contracts with land holders but gives them flexibility to come back and pump the oil later.