Given all the media hype about impending peak oil demand—largely as a result of the explosive growth of electric vehicles—you might be forgiven for missing the news that U.S. gasoline demand just hit a new all-time high.

My news feed tends to be dominated by headlines like Goldman Sachs warns of peak oil demand by 2020 (even though the headline doesn’t accurately reflect what that article said).

Sensationalism dominates the news, and the idea that oil demand will begin to decline shortly is certainly sensationalistic.

I believe this is one of the factors that has helped keep oil prices depressed because it sets up expectations that oil’s days will soon be at an end.

Expectations can have a greater impact on stock market performance than actual results.

For example, last week electric vehicle maker Tesla (NSDQ: TSLA) announced a record quarterly loss, admitted that orders were lower than advertised, and revealed the company had burned through another billion dollars in cash. Yet Tesla’s share price surged.

Why? Expectations about the future. 

On the other hand, I saw some energy companies report earnings that were far better than Tesla’s, and in many cases, the share price fell.

Again, the bearishness was driven by expectations that are being partially fed by misleading media narratives.

My job is to ignore the hype, focus on reality, and invest on the basis of fundamentals rather than on hopes and promises.

Every Wednesday, the Energy Information Administration releases its Weekly Petroleum Status Report. Last week’s report noted that gasoline supplied in the U.S. during the final week of July was 9.842 million barrels per day (BPD).

That is a record. And not just seasonally—it is the highest weekly U.S. gasoline consumption number ever.

In fact, the top four weekly gasoline consumption numbers on record all took place in 2017—not exactly what you would expect given all the articles about “peak demand.”

How to Play Rising Gasoline Demand

High gasoline demand is great news for U.S. refiners.

More good news for refiners is that the U.S. is also exporting record amounts of crude oil—more than 3 million BPD (even though the U.S. remains a net importer of crude oil).

By the way, those record gasoline consumption numbers I mentioned earlier do not include gasoline that is exported.

Meanwhile, U.S. shale oil production that again turned upward last fall is beginning to level off. Last week, there were multiple reports warning of an impending slowdown in U.S. shale oil growth.

Weekly production numbers that grew by 800,000 BPD from last October to April have added less than 200,000 BPD since. The number of rigs drilling for oil, which had grown for a record 23 straight weeks, finally declined in June.  

Ironically, the surge of production had kept oil prices in check—and in turn kept the share prices of most oil producers under downward pressure.

But last week, the news of a possible slowdown in production caused share prices for several major oil producers to fall (even as oil prices had just notched the strongest monthly gain this year).   

What does it all mean for investors?

Current conditions are good for refiners, and indeed U.S. refiners are up an average of nearly 40% over the past year.

Further, lower oil production and higher demand are a recipe for falling inventories.

Record inventories over the past couple of years have been the primary factor keeping a lid on oil prices. But U.S. crude oil inventories have fallen steadily since April, and are now 50 million barrels lower than the levels of early spring.

In the short term, at least, that trend will likely continue.

Longer term, it will depend on whether the upswing in U.S. shale oil production resumes, or whether it remains flat or declines. Flat or declining production for U.S. oil producers is likely to be more than offset by higher oil prices.

OPEC is the wild card in the mix. They still have the power to cause the oil markets to swing wildly by raising or lowering production quotas. Stay tuned.