One economic advisor decides to step down and the markets go crazy. Really? In the meantime, in the real world, oil demand is surging, and supplies are tightening as global demand continues a rampage. In the U.S. we are facing a supply squeeze because of another big drop in Cushing Oklahoma delivery stocks. Forget Gary Cohn. Cushing, we have a problem.

The Energy Information Administration (EIA) released another very bullish inventory report, which you would not know by watching the market action. Fear trumped reality as the departure of Gary Cohn caused turmoil and a sign to those who want to believe it, an all-out price war. Yet, if you look beyond the fear, you have an oil market that is seeing the strongest global demand in decades. It also is seeing the world’s largest oil consumer see their supply drop to fumes in one of its major storage hubs.

The EIA reported that supply fell by 605,000 barrels in Cushing, Oklahoma. That put Cushing supply at the lowest levels since 2014 and helped lead to a smaller by 2.4-million-barrel crude supply build. You can tout U.S. oil production, which increased to 10.369 million barrels a day, but it does not do you a lot of good if you can’t rebuild supply when refiners are in maintenance. U.S. crude oil refinery inputs increased slightly to 15.9 million up 53,000 barrels per day as refiners upped runs to 88.0% of their operable capacity. U.S. oil exports did play a part by increasing by 608,000 barrels as U.Ss oil goes to feed an oil hungry world.

Despite trade war, fears the reality is that nothing has happened yet. Oil demand is on fire despite predictions by some agencies that it would not be. Yet, it will be demand that drives prices, not shale or even OPEC cuts. That sentiment is shared with EXXON Mobil. Exxon told Bloomberg News that ” Soaring demand is the main reason for the rebound in oil prices -- but if the economy falters, crude could tumble back to $40/bbl, according to ExxonMobil.  Copycats by OPEC countries have helped, but economic expansion is what’s “really driving demand at levels much higher than recent history,” CEO Darren Woods said Wednesday in a presentation to analysts in New York.  “When that demand starts to tail off, if Permian production continues to rise, I think that you’re going to see a different rebalancing of the market and OPEC will have to make some calls around how they want to manage that,” Woods said.

Yet, it is what Exxon Mobil says next that may leave the market undersupplied. “Exxon can’t rely on short-term market swings to make long-term investment plans, so the company tests its decisions with oil at $40/bbl, Woods said. “You could find yourself back in there, depending on how this all plays out.” 

So, fear of $40 a barrel means that Exxon won’t make the investments that the oil market seems to be screaming for right now. In other words, if the trade war fears are over hyped and the economy keeps growing like it is, then we are going to be undersupplied.

The Cohn craziness did not cause people to stop driving their cars, as far as I know. I don’t think it caused anyone to cancel their flights. Its all about the demand.  Demand for oil products, according to the EIA, averaged 20.3 million barrels per day, up by 3.4% from last year where demand was exceptional. Gasoline demand is at a near record 9.0 million barrels per day, up by 3.3% from last year. Distillate fuel demand was at 4.0 million barrels up 0.6% from year. Jet fuel demand really soared to the wild blue yonder and is up 18.3% compared to last year. Gasoline stocks fell by 788,000 barrels, distillate supply down by 559,000 barrels.

Don’t let Cohn’s craziness and shale pipe dreams talk you out of putting on your summer fuel hedges. I spoke to too many folks that were burned this winter by believing the shale hype, assuming that was going to keep prices low. When the Cohn thing levels off, oil will have to face the strongest demand growth we have seen in a decade so make sure you respect the upside risks.