Oil prices stuttered earlier in the week on concerns about the Chinese economy. Yet, the latest data shows that China is importing a lot of oil and showing no signs of slowing down. China’s crude oil imports rose to 37.04 million tons in November, or 9.01 million barrels per day (bpd), the second highest on record, data from the General Administration of Customs showed on Friday, according to Reuters.

The demand side of the equation is what many people forgot to think about when they kept taking glut like that was somehow a permanent. Yet, demand in China and above average growth in both developed and emerging markets has helped draw down global oil inventories. While OPEC is looking for a balanced market in their Third Quarter of last year, the evidence that we are seeing in declining oil inventories is that it is happening right now.

The Energy Information Administration (EIA) latest report on U.S. oil production hit 9.71 million barrels a day, the highest level in weekly data compiled by the EIA since 1983. But considering recent admissions by the EIA about their methods and how they may be overstating U.S. production levels may be the reason the market is skeptical.  Remember a study by MIT showed what they say is a critical flaw in the way the EIA forecast production numbers that leads them to vastly overstate U.S. oil production numbers.

The study pointed out something we pointed out in our “Peak Shale” report that the EIA was assuming that productivity of individual wells will continue to rise because of improvements in technology or as the report said that they assumed that the oil production would compound year after year, like interest. So, the EIA would look at rising rig counts and assume that would mean more oil. Yet, because of that incorrect assumption they kept raising production when in reality because of less production per well and the sweet spot where they have been drilled would cause less not more oil per well.