OKLAHOMA CITY—The upbeat message? The market is looking pretty good again, said Ed Morse, managing director and global head of commodities research for Citigroup Global Markets Inc., at Hart Energy’s recent DUG Midcontinent Conference.

But how long will it last?

Morse’s remarks came at a time when seven of the prior eight weeks had produced draws on U.S. oil in commercial inventory, totaling a decline of 27 million barrels (MMbbl).

In addition, about the same amount of natural gas was stored as one year earlier—roughly 3.9 trillion cubic feet (Tcf), despite exiting what wasn’t much of a winter at a hefty 2.5 Tcf. Morse expects the winter of 2016 will be “significantly colder than the past winter and mildly colder than the 10-year average.”

Meanwhile, oil prices will continue recovering through this year and into 2017, he added. Morse expects the fourth-quarter 2017 Brent price will average $65/bbl. “That means we will see some $70 hits.”

On Nov. 2, however, WTI traders were scrambling; the December contract declined from $46.67/bbl to $44.66/bbl. The EIA reported a 14.4 MMbbl build in U.S. oil in storage, overwhelming a 2 MMbbl Bloomberg consensus that Thomas Marchetti, managing director for energy strategy at Jefferies LLC, called “worthless.”

He wrote, shortly after the EIA report, “I don’t tend to send out intraday color on the EIA’s [reports], but probably need to make an exception here.”

The source of the build was the LLS-Brent spread at a $3 premium as so-called conflict barrels from Nigeria returned to the market.

“The risk was building in the Atlantic Basin and today the tidal wave started to hit,” Marchetti wrote. “…. The 2 million barrel per day increase in imports drove the 14 million barrel build, absent an increase in refinery crude runs.”

OPEC members are to meet on Nov. 30. Marchetti wrote that investors “need to come to a reality about the ability of Saudi [Arabia] to convince OPEC to cut. It is not likely to be enough to balance markets.”

Morse expects supply and demand will come into balance as additional capacity from OPEC members is not likely and capacity growth outside of OPEC is sluggish, except from the U.S. and a few bright spots elsewhere.

He expects daily U.S. production will grow between 300 Mbbl and 400 Mbbl in 2017, and that the call on the U.S. in 2018 may be an additional 400 Mbbl/d or 500 Mbbl/d.

“What we do know is, we’ve had a record level of deflation onshore and in the deepwater [Gulf of Mexico],” Morse said.

At the same conference, Subash Chandra, managing director and senior equity analyst for Guggenheim Securities LLC, said 60% of U.S. operators’ cost reductions since 2014 are permanent through efficiency gains. If oilfield service prices reinflate to the 2014 level, which he noted was an exceptional macro-environment, costs would be a net 30% below 2014’s.

“I have a positive message as well,” he said after Morse’s remarks. For example, producers are reporting new oil discoveries, such as in the Midcontinent and Permian Basin, “and oil has a $40 handle. It’s a testament to the resilience of the oil and gas industry.”

Prior to 2015, producers sitting on shale resources or positioning themselves to have shale resources weren’t managing for the balance sheet; “it was about maximizing net present value,” Chandra said. Since 2014, the focus has been on cash flow neutrality that “we hadn’t seen in a decade.”

Many balance sheets were cleaned up by the second half of this year, particularly with debt-holders’ conversion of their notes into equity.

“Bond values were at such catastrophic levels. The equity investors understood that their values were very precarious because bond markets had not healed. Now in the bond market, most bonds out there are selling at 80 cents [or more] of par.”

Chandra said it has been surprising “how quickly this happened. What we thought was that 2015 would be about cash flow neutrality; 2016 would be about delevering and 2017 would be about inventory and resource plays. Well, the bond market was healed by the second quarter of 2016.”

Now investors want growth. “They say, ‘we want companies that walked through fire to come out on the other side healed,and increase activity levels, cash flow, production, so on,” Chandra said.

But the enabler of this growth is inventory. Some operators don’t have the inventory at $40/bbl oil.

“They’re in an inventory-deficit level,” he said. Exceptions are those in the Midcontinent and Permian Basin. “These two plays … they’re the only show in town.”

In the Stack play in Oklahoma, Continental Resources Inc. (NYSE: CLR) reported in early November that its eight-well Ludwig pad had a combined peak 24-hour rate of more than 21 Mboe, about 70% oil. The company’s first well in the pad had cumulative production of 298 Mboe, 74% oil in its first 338 days online.

Chandra forecasts at least $10 billion of transactions in the two play areas during the next 12 months.

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