Oil moved up sharply at the end of last week–so maybe now the media will start paying attention to a fact it has so far ignored–the fact is that U.S. oil demand has SOARED in 2015.

The sheer magnitude of the American oil demand increase by itself has to have had a significant impact on the global oversupply situation.

Rather than talk about it, let’s instead look at some actual data.

The table below shows the year on year increase in total American oil consumption in barrels per day.  The source of the data is available for all to see by clicking the following link:

http://www.eia.gov/dnav/pet/pet_cons_wpsup_k_w.htm

Since the beginning of December, year on year oil consumption in the United States alone is up 758 thousand barrels per day on the prior year. Over the last two months (since June 1), that increase jumps to more than a million barrels per day.

That is pretty incredible folks, the size of this demand response should be coming up in every conversation about the state of the oil market.

To appreciate how surprising U.S. demand increasing a million barrels per day year on year is, we need to go back and look at what was expected from the U.S. in 2015 as recently as last December.

In the December 2014 Short-Term Energy Outlook the EIA forecast that total U.S. consumption would increase by only 140,000 barrels per day in 2015.  Since June 1, we are running at an increase that is 7 times what the EIA expected.

This has to be the biggest surprise in the oil market in 2015 and it sure isn’t getting much attention likely because it doesn’t fit in stories discussing oil in the $40s.

The other side of the oil market story is supply and there are good things starting to happen for oil bulls in the United States as well.

In its second quarter conference call global oil reservoir specialist Core Laboratories (NYSE:CLB) expressed a belief that daily U.S. oil supply had peaked in April and would drop by 500,000 barrels per day by the end of 2015.   Core Labs also anticipates a decline of another 500,000 plus barrels per day in 2016 unless rig counts rebound sharply.

We may have seen the first signs of this the last weekly report from the EIA which showed onshore U.S. oil production dropping by 150,000 barrels per day.  I’ll be eagerly awaiting the next few reports from the EIA to see if that is a “one-off” or the start of a significant decline.

If the demand strength continues and the supply reaction plays out as Core Labs expects it would suggest that the U.S. alone will eliminate virtually the entire global oversupply issue by the end of 2015.

There is more to think about though as the U.S. represents less than a quarter of the global oil demand and a little more than ten percent of supply.  That begs the question….won’t a similar response on both sides of the ball be happening across the globe?

If U.S. demand alone is up 1 million barrels per day, it is very hard to imagine that the other 75% of the world won’t at least provide another million barrels of demand growth.

The global supply side is a bit more complicated as Saudi Arabia has actually increased production so far in 2015 while other countries must surely be struggling.  For example we have recently been put on notice of the huge reduction in production growth expectations from Petrobras in Brazil.   Surely oil basins in the North Sea, Venezuela and elsewhere are also feeling a lot of pain.  So there is a very valid argument that the supply-demand

So the turn in oil prices could be nigh.  But that does that mean I’m rushing out to buy oil stocks?

No.

It just says things are happening so fast it’s hard to keep track of every element and it’s hard to decide what the Market will do with a lot of the conflicting information (which it doesn’t trust as much as it used to).

I’d rather be late and right, than early and wrong.

I was careful with my exposure to oil in 2014 and my OGIB portfolio was able to increase by 18% in a year that oil prices dropped 50%.

I’m going to take a careful approach again now and wait for the crystal ball to become a little less murky before diving in.

EDITORS NOTE–my largest energy position does not depend on the price of oil to make me money, and pay me the double digit yield I’m enjoying.  It has one of the best stock charts in the industry.  And I sleep great at night owning it–even in this market.  Click here to profit while you sleep.

Keith Schaefer