Rising yields and rising oil production is causing oil to plunge even as US oil stockpiles drawdown at a record rate. The rebound in US oil production of 88,000 barrels a day according to the weekly Energy Information Administration (EIA) and was the key data factor that is causing the selloff. The market believes that the 100,000 barrel drop in US oil production was just a storm-related fluke and that US oil production will continue to rise even as many producers at this price level will struggle financially.

Forget about the 6.299 million barrels drop in crude supply and forget about the surge in gasoline demand because obviously, the market is. Even another 1.33 million barrels drop in Cushing, Oklahoma supply is being ignored as bearish forces continue to control the market mindset. Perhaps concerns about the economy are also sinking in as rising bond yields seems to suggest that the easy money in the global market place may be drying up that may put a dent in oil demand going forward. That means that we must get ready for another round of shale bankruptcies as many producer hedges have already expired. While it is great for some to see lower prices, the shale oil producer may be a victim of their own success. While there is a lot of talk about how cheaply some producers can produce, the reality is that with the debt levels of many players and the falling yields per well and decline rate that may be put to the test.

Today’s US monthly jobs report looms large. As the European Central Bank is seen as being more hawkish, the jump in global yields is becoming a problem not only for the oil price but also for the cash strapped US shale producer that will be depending on borrowed money. If you must borrow more money at higher rates for a product whose demand may slow due to higher rates, this will be a significant challenge. At some point, something has got to give.

Yet there were some things in the EIA report that were supportive other than the headline numbers. US fuel demand surged by 3.62% in the last 4 weeks. Refinery runs were up 1.1 percent and crude imports use by 251,000 barrels per day. Yet the belief that no matter OPEC does, or even how prices fall apart on the shale producers, somehow it will not matter.