Oil prices traded at the highest level since OPEC declared a production war on Shale and laughed off an estimate of record U.S. oil production from the Energy Information Administration (EIA). The reason why the oil bears got it wrong was that they underestimated demand and overestimated production. The Bears failed to see that OPEC was serious about reducing supply and failed to respect the agreement they made with Non-OPEC nations. The bears failed to consider the impact from a historic pullback in energy investment of over a trillion dollars and forgot the adage that low prices sometimes cure low prices. Oil prices were undervalued because of false fears about the economy and the belief that U.S. shale production would somehow be able to match OPEC production cuts barrel for barrel. They gave too much credit to Libya and Nigeria’s ability to be a stable producer and they thought that the lifting of Iranian sanctions would see a spike in Iranian oil production to a level much higher than they are producing right now.

This along with strong global demand is one of the reasons that we have seen oil supply fall in the U.S. at a historic rate. Oil supply, to pick a week in March, stood at 528.4 million barrels. As of last week, that figure fell to 424.5 million barrels. That is an incredible drop and if the American Petroleum Institute (API) report is any indication, that crude supply number should fall sharply again. The API reported a massive 11.19 million barrels drop in crude supply. If we are producing so much oil, then why are these numbers falling so hard? The API reported another big 2.516 million barrels drop in Cushing Oklahoma.

The Bears did get a consolation prize as distillates rose by a huge 4.65 million barrels and gasoline supply by 4.338 million barrels.

Yet, oil did not care, instead focusing on the historic crude oil supply drain. The oil market even rallied after the Energy Information Administration (EIA) said that its estimates that OPEC countries cut crude oil production output in 2017, but those cuts were offset by increased production in non-OPEC countries, especially the United States and Canada. “EIA forecasts U.S. crude oil production to grow by 980,000 barrels per day in 2018, and we expect most of that growth to come from tight rock formations in Texas and North Dakota.”