In 2013, when shale oil was in its relative infancy, Saudi oil minister Khalid al-Falih asked reporters to stop asking him questions about shale oil. “Leave us alone and leave all these issues. We had enough of shale oil and talks of shale. Please talk about anything else,” he snapped in response to a question about OPEC’s response to shale. Looking at 2017, accelerating US production failed to derail the crude oil rally. Thanks to strong global growth and OPEC’s supply cuts, crude oil demand far outpaced supply. Unsurprisingly, 2017 was a good year for the commodity. Al-Falih’s comments accurately reflect the exasperation of many speculators in response to the chorus of warnings regarding US shale. In short: “shale supply is growing, so what!”

The problem is twofold: Firstly, supply growth has accelerated to the point of catching up with demand growth. Historically, this has foreshadowed crude oil bear markets. Secondly, speculator enthusiasm is at bullish extremes based on a variety of different metrics. Today, going long crude oil has become a global consensus idea just as the fundamentals driving the rally have become weaker. While underlying fundamentals can still push prices higher, the bullish case for crude is getting stretched.

Crude oil fundamentals matter

One of the biggest believers in the shale oil revolution is the International Energy Agency, an intergovernmental organization focused on the world’s energy markets. While naysayers have frequently pointed out infrastructure bottlenecks as an impediment to shale supply, recent (unaudited) US production figures suggests that the industry is overcoming this issue. If data from the US Energy Information Administration is to be trusted, the US is now the world’s second-largest energy producer, with production at 10.25m barrels per day. This is higher than the previous record for US crude production from 1970. Given crude’s sharp fall after the release, it appears that the data has a good degree of credibility. While infrastructure issues remain, the US energy industry is investing aggressively in response. According to a recent study by US energy industry executives, an astounding $50b of new crude oil-related investment projects (in Texas alone) were launched after the US lifted its export ban in 2015. This week’s EIA figures confirm that these investments are yielding fruit. An overview of crude oil demand versus supply growth is shown below: