U.S. oil investors tend to fixate on domestic oil markets—and particularly shales—often at the expense of the bigger global picture. In the absence of a clear consensus on the marginal cost of oil, WTI bounces around with every oil inventory and drilling rig report. Rigs and inventory down? WTI rallies. Crude stocks up? Oil prices tank.
No doubt, the U.S. is important. U.S. shales will drive the eventual rebalancing of global oil markets. The high decline rates of shale wells, and the acute exposure of independent U.S. producers to prevailing market conditions, virtually guarantee that U.S. shale production will take the brunt of market adjustments. If global oil production is to fall, U.S. shale output will lead.
But that's not the whole story.