“The market’s not shocked anymore”

The price of both U.S. and international crude oil benchmarks has been fluctuating this morning following news from the Energy Information Administration that crude stockpiles grew by more than 10 million barrels last week. The news initially sent prices down as much as 2%, but both have recovered, and are even showing gains since this morning.

Oil price

Source: Bloomberg WTI Pricing March 3, 2016

The EIA said crude stocks grew 10.4 million barrels last week, versus the 2.6 MMBO build expected by analysts, reports The Wall Street Journal. The data confirmed a larger-than-expected increase reported by the American Petroleum Institute Tuesday, which said stockpiles grew by 9.9 million barrels.

Last week, total U.S. crude inventories stood at 518 MMBO. Historical data shows inventories last surpassed the 500 MMBO mark in 1930. Inventories at Cushing rose to 66.3 MMBO, 90% of storage capacity.

Changing moods in the market

The drop in prices followed the news of the large build, but the subsequent recovery seems to indicate markets may be alright with the builds.

“The mood of the market has changed,” said Phil Flynn, an account executive at brokerage Price Futures Group. “The market’s not shocked anymore. They’re looking beyond the numbers.”

Oil prices have been supported in recent weeks, by an agreement from OPEC and non-OPEC members to cap production at January levels, a deal which was further strengthened yesterday when Russian Energy Minister Alexander Novak said a “critical mass” of oil producing countries is now on board for a production freeze. The group of countries now represents about 73% of the world’s production, according to Novak.

A number of U.S. shale producers have also begun cutting production, potentially helping to bring supply and demand back into balance more quickly. Major producers like EOG Resources (ticker: EOG, EOGResources.com) and Whiting Petroleum (ticker: WLL, Whiting.com) have lowered production guidance year-over-year by 5% or more.

”The oil market has seemingly found its footing,” said Seth Kleinman, analyst at Citi Research. Though he expressed concern that prices over $40 per barrel “would prompt shale producers to reverse many of the production cuts that are supporting the rally.”

Continental Resources (ticker: CLR, ContRes.com) Vice President of Crude Logistics and Hedging Kirk Kinnear told Oil & Gas 360® that he does not see shale producers bringing production back on as quickly as some analysts fear, however. “It’s not like a light switch,” he said.

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