Shares of oil companies sank on Wednesday, along with the price of oil, on news that U.S. oil reserves greatly exceeded expectations, suggesting further deteriorating demand.
Crude oil prices tumbled $3.91, or 8.1%, to $44.65, off nearly 70% from its record high of $147.27 in July 2008.The Energy Information Administration said crude oil inventories rose 6.7 million barrels, well beyond the 1.5 million-barrel build expected. But despite the inventory glut and declining demand, some analysts say that geopolitical threats to supply and positive developments among oil companies are holding up the sector.
Raymond James analyst Darren Horowitz on Wednesday said the Russian-Ukraine gas dispute, which has increased the demand for heating oil, and the conflict in Gaza have both driven oil's gains in recent weeks.
Since Dec. 24, oil prices jumped $9.29, or 26%, boosting shares of oil companies.
Stephen Berman, an analyst with Pritchard Capital Partners, said he believes energy stocks are bottoming due to positive early signs, such as recent gains in oil prices and the slow unfreezing of credit. Berman added that he remains "cautiously optimistic" about the oil service sector and favors the higher-quality names for the time being.