Brent Crude crashed through $70 a barrel and WTI just shy of $65, shattering another glass ceiling many oil bears said was impossible to ever see. This came as OPEC said it has no intentions to relent on production cuts and overshadowed rising rig counts. Even as the market gets a little turn around Tuesday profit taking, the oil bears are having to throw in the towel.

 As I told Barons “WTI oil prices will average around US$67 in 2018 before settling trading over US$70. If Opec keeps its crude production-cut deal till the end of this year, WTI prices could hit US$80 a barrel,” said Flynn. And that looks like that is going to happen.

There are no such things as natural ceilings when it comes to the price of crude oil. Oil bears told us that shale oil production would keep oil low forever and that oil was turning into a worthless commodity. They told us that shale oil and producers would have to find a way to live with $26 a barrel oil. They told us that oil prices would be lower for longer and that prices would stay below $30, than $40 than $50. They said that U.S. shale put a ceiling on crude. As I told Reuters: But Flynn said a fast climb in U.S. output is not so clear. “The realities of the shale market are starting to sink in. Shale producers must add a lot of rigs, frack crews and add a lot of investment. It takes time to raise that production.”

The bears were wrong about shale and its ability to cap prices. They were wrong about OPEC adhering to production cuts. They made the same mistake that they made back in the late nineties. The best bull markets are born in a glut of supply.

The Energy Report has written many times over the last few years that oil is at a bottom end of a major bull cycle. We called a major bottom back in 2000 and we did so again in 2015. As I wrote back when oil was at the bottom in November of 2015. ” While crude oil prices in the short term are fixated on the Fed and current oversupply, in the big picture it may be time to party like its 1999. In 1999 oil prices had just come off a year (1998) where oil prices had dipped as low as $10.35 per barrel and there was doom and gloom across the energy space. Yet in hindsight oil in 1999 was at a historic turning point and a major bottom that changed the energy landscape for over a decade.

 I said that “There are so many similarities about what is starting to happen in the energy space now it’s almost eerie. In 1999 they were saying many of the things that we are hearing today about oil, but looking back it was dead wrong.

For example, what they were saying about China and their demand for oil was wrong. In 1999 a dour assessment about their oil demand. At the time, the Energy Information Administration said, “Economic developments in Asia over the past 18 months have weakened worldwide oil demand and lowered world oil prices - a trend that is likely to continue for several years.”  This sentiment became ingrained and there was denial by many oil market watchers even as Chinese demand continued to defy expectations. This year, while oil demand in China has softened, their imports are well above a year ago.

Back in 1999 market watchers and big banks talked about the never-ending glut of oil as OPEC overproduced to maintain market share. There was no adherence to quotas in the cartel because no matter what, one of the countries would start to cheat on those established quotas and the rest would follow.

The Economist wrote an article in 1999 called “Drowning in Oil.” They wrote that what sneered Abdurrahman Salim Atiqi, Kuwait's one-time oil minister, “is the point of producing more oil and selling it for an unguaranteed paper currency?” In 1973, when most people feared that nothing could stop greedy OPEC members from rising oil prices as much as they chose - though not this newspaper, which forecast an oil glut--the producers affected to accept western cash for their black bullion out of charity.

Now the long oil-price odyssey seems at an end. Since its peak in 1980, the price has fallen erratically. It has plunged by half in the past two years alone. In real terms, oil now costs roughly what it did before 1973. Crude is gushing from the ground at the rate of 66 million barrels a day, half as copiously again as in OPEC's prime. The world is awash with the stuff, and it is likely to remain so.”  They were wrong.

The Energy Information Administration warned in 1999 that non-OPEC oil production was expected to increase more rapidly. Contributing to the growth was a near doubling of production from the former Soviet Union by 2020 (primarily in the Caspian Sea oil fields), new fields in the North Sea, and increases in the offshore regions of West Africa. Mexican oil production would continue to expand, and the rest of Latin America was projected to increase production by more than 50%, particularly in Brazil and Colombia. Lower OPEC production and higher non-OPEC production then would mean that OPEC would not dominate the world oil market until later. The Energy Information Administration warned in 1999 that non-OPEC oil production was expected to increase more rapidly. (they were wrong)

 My point is that we are in a major bull cycle. We have fallen behind the demand curve and we need to ramp up production. It will take time and shale oil producers can’t keep up. We get an outlook on energy from the International Energy Agency that will have to eat crow after missing it projections by a wide margin. Maybe they should explain their call for oil demand to be lackluster in 2017.

The Energy Information Administration should also admit that they have overestimated shale oil production by a wide margin.