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Mega deal in oil patch can’t offset rising oil stockpiles

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Mega deal in oil patch can’t offset rising oil stockpiles

The $70-billion mega-deal between Royal Dutch Shell and BG Group didn’t prop up energy shares for long, as a fresh report showing rising stockpiles of U.S. crude both oil and energy sent shares back down. Wall Street was hoping that the big deal in the oil patch would propel prices higher in the battered sector. But an early rally has given way to selling and more losses after an Energy Information Administration report showed U.S. inventories grew more than expected last week.shell_0

U.S. crude stockpiles gained 10.95 million barrels in the week ended April 3, the EIA said. Analysts surveyed by Bloomberg had expected an increase of 3.25 million. Oil prices also weakened after news that Saudi Arabia expanded its oil output in March to a record 10.3 million barrels a day. In late-morning  trading, U.S.-prouduced crude was down $2.34 per barrel, or 4.3%, to $51.64. And the S&P energy index, which had been in the black earlier in the session, was down 0.5%.

The big winner in today’s cash and stock deal, which forms a European energy giant, was Britain-based BG Group, which saw its shares soar nearly 30%, up $3.92 to $17.50. Shares of the acquirer, Royal Dutch Shell, were down $2.64, or 4.3%, to $59.31. Today’s big deal between Shell and BG was spurred by the fallout from the massive drop in oil prices and could be the start of a fresh wave of similar deals as energy firms look to stay competitive, cut costs and scoop up some assets at good prices.

It’s not the first marriage in the oil patch since U.S. -produced crude tumbled more than 50% amid a global supply gut. Late last year, oil services giant Halliburton gobbled up smaller rival Baker Hughes in a deal valued at about $35 billion, or half the size of today’s deal. aHere’s how other stocks in the oil patch are moving on the news. Most of the big players, which were sporting gains before the opening bell, have turned lower.