Oil prices have shown signs of life over the past few weeks, as production declines in the U.S. raise expectations that the market is starting to adjust. As a result, Brent crude recently surpassed $40 per barrel for the first time in months.
A growling list of companies are capitulating, announcing production cuts for 2016. Continental Resources, for example, could see output fall by 10%. A range of other companies have made similar announcements in recent weeks. The energy world has been speculating about declines from U.S. shale, and the declines are finally starting to show up in the data.
Despite the newfound optimism that oil markets are balancing out, crude oil sitting in storage is at a record high in the United States. Energy investors may have preferred to focus U.S. production declines, or the fall in gasoline inventories in early March, but meanwhile crude oil stocks continue to signal that oversupply persists.
Crude stocks rose once again last week, hitting yet another record of 521 million barrels. Storage levels at Cushing, Oklahoma, an all-important hub where the WTI benchmark price is determined, have surpassed 90% of capacity. U.S. output may be starting to decline, but it is doing so at a painfully slow rate.