Even the International Energy Agency is having trouble figuring out where oil is going

Idled oil well pump jacks sit in the yard at Wood Energy Inc. in Woodlawn, Ill, Jan. 20, 2015.
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Where is oil going? Even the International Energy Agency is having trouble figuring it out.

Oil has had a tremendous three-day rally, going from a low of almost $47 last Thursday to almost $54 yesterday, a nearly 15 percent move.

Given that kind of volatility, it may not be surprising that it dropped nearly 6 percent from its high to its low today, currently trading just north of $51.

Energy stocks, not surprisingly, are the laggards in the S&P 500.

While there is no fundamental issues moving oil today, traders have pointed to the International Energy Agency (IEA) Oil Market Report that a rebalancing of supply and demand "can take months, if not years, to be felt."

Gee, that's encouraging. In the meantime, we all know the issues: production is still growing, despite talk of cuts, and there is a significant inventory overhang.

Bulls have pushed the idea that cap ex spending is coming down fast. On Monday, OPEC hinted of a drop in non-OPEC production, one of the factors in yesterday's rally.

The IEA does not dispute this, but notes that "it will take time for investment cuts to make more than a relatively small dent on production. In the meantime, inventories are likely to build further."

Wait, it gets more complicated. The IEA published a separate report today, called the Medium-Term Oil Market Report (MTOMR) where they distinguished between U.S. oil production (specifically shale production) and production elsewhere in the world, and concluded that "the lag of the latest market response might in fact be shorter than usual."

Why? Because the U.S. shale business has the ability to open up and shut down production much faster than in almost any other part of the world. They ramp up fast, they ramp down fast.

The swiftness of U.S. supply cuts "will help put a floor under prices, just as their reversal when prices rebound in earnest might put a ceiling over them, the IEA says.