On third anniversary of oil bust's beginning, should crude prices be this low?

The oil glut confounded economists and analysts once again last week as the energy markets driving Houston's economy crashed into dangerous territory - almost exactly three years from the beginning of the epic bust that crippled the U.S. oil industry.

The buyers and sellers who sent oil prices tumbling below $45 a barrel shrugged off rosier expectations that demand soon would leapfrog production for the first time since 2014. New data, however, showed global stockpiles of oil grew in April while hard evidence of a projected supply shortfall of 500,000 barrels a day failed to materialize - again.

For traders, it meant there was still no end in sight for a world awash in oil. "The market isn't happy," said Neil Atkinson, head of the oil markets division at the International Energy Agency, a consultancy group in Paris.

With Tuesday marking the third anniversary of oil's recent peak -- $107.26 a barrel -- and the beginning of the worst oil bust in a generation, the gyrating oil prices of the last several weeks are the result of two main forces: an oil glut that has drained more slowly than expected and a huge flow of money in and out of global markets that has exaggerated price movements. Even though analysts believe oil supplies will decline and prices rise if OPEC keeps its promises to cut production, traders aren't ready to believe that, worrying about stubbornly high U.S. fuel stockpiles and a gusher of oil from West Texas.

That pessimism, in the face of a broad consensus that global supply will match demand by the end of this month, may be overdone, analysts said, underscoring how oil prices have become decoupled from the flow of crude and more closely tied to the whims of speculators who have poured billions of dollars into the market this year.

For oil executives and analysts trying to figure out where prices will go next, the distortion has created a complex puzzle in which supply and demand pieces no longer fit neatly together, making it all but impossible to determine where exactly the market - and the fortunes of Houston's oil companies and energy workers - are headed.

At the moment, investors see a grim future. Speculators who bet on an oil rally in record numbers earlier this year are still recovering from a massive sell-off that began in March when it didn't materialize. The rout spurred a surge of bets against crude that added more downward pressure on prices as U.S. drilling rigs returned to the oil patch and OPEC's production cuts in the first three months of 2017 disappointed traders.

"People lost money," said Ed Morse, global head of commodities research at Citigroup, over a plate of eggs and bacon in Houston last week. "That's the main reason the market remains skeptical. These investors would normally be trying to ride a market that's rebalancing the way this one is."

Should be $55

If oil traded on fundamental market changes alone, and investor sentiment had no effect on the price, crude would fetch$55 a barrel today, and it would climb toward $60 a barrel by the end of the year as OPEC's cuts kicked in, diminishing the oversupply of oil, Morse said. At those levels, oil companies would begin investing more money into major oil projects and speed up drilling in U.S. shale plays.

Global oil demand will reach 97.3 million barrels a day in the second quarter, 500,000 barrels a day higher than global production, according to the International Energy Agency. And analysts believe the oil demand will exceed production for several months. It would be a big change from mid-2015, when output outstripped demand by as much as 2 million barrels a day.

Yet oil prices oil prices were significantly higher then, averaging nearly $60 a barrel in June 2015. Oil settled in New York Monday at $44.20 a barrel, a seven month low.

"I've quit trying to beat my against the wall to find consistent factors that drive the price," said Kyle Cooper, an analyst at Houston consulting group IAF Advisors. "They simply don't exist."

The disconnect in recent trading perhaps began in September, when OPEC initially announced its plans to trim production and oil prices surged as record amounts of money poured into the market. But that rally may have been premature.

Refiners and other buyers of oil reacted to the news by snatching up as much cheap crude as they could while Russia and the Saudi-led OPEC pumped an additional 1.5 million barrels a day into the market to supply it - almost the same amount they promised to cut. That oil was shipped into the market in the first three months of the year, and so the cuts didn't have much effect on supply levels until April, undercutting investor confidence and leading them to pull out quickly at any hint that the glut be lingering, analysts said.

These developments turned investors' eyes toward inventories even as evidence showed OPEC was following through on its production cuts, helping to make the fluctuating stockpiles of U.S. crude the most important barometer for prices recently. Increases in U.S. petroleum inventories spurred recent sell-offs in commodity markets.

Still, the amount of crude stored in tanks across the nation has dropped around 5 percent to 511.5 million barrels since April, according to the Energy Department. That's well above the average of 337.4 million stored barrels from 2010 to 2014, but it's a steady decline, despite the past two weeks in which U.S. fuel stocks rose.

West Texas wild card

One reason oil and gasoline stocks haven't shrunk as quickly as investors hoped is sluggish U.S. demand. The Energy Department forecasts that gasoline consumption will come in roughly flat over the summer, typically when driving peaks for the vacation season. Motorists are expected to consume 9.7 million barrels a day, roughly the same the same as last year, before dropping to 8.7 million barrels in January 2018.

Globally, gasoline demand growth has slowed, too. In the second quarter, demand rose 1.4 percent over the same period last year, but it marked the slowest second quarter growth since 2014. In China, the world's second-largest oil user after the United States, oil demand rose just 2.9 percent in the second quarter, far below its 8.2 percent growth in the second quarter of 2015, the IEA said.

"China's energy demand was growing at 8 to 10 percent a year, but last year it grew 1 percent," said Mark Finley, an economist and general manager of global energy markets at BP in Washington D.C. "There's clearly structural change happening in China, with less energy-intensive economic activity."

But the shifting Chinese economy may not be the biggest mystery for oil markets. Instead, the greatest unknown may be the resurgent U.S. shale oil industry.

The number of rigs drilling wells across the country has doubled since last year, but projections of U.S. oil production growth this year vary widely, anywhere from 600,000 to 1.2 million barrels a day. Since oil companies have only been drilling into shale rock for about a decade, it's still unclear how quickly they can boost output - there's just a lack of observable data and science to back up any assertion.

And it may take longer than many expect. Even in the prolific Permian Basin, the center of the new shale boom, drillers have been slowed by the congestion of hundreds of trucks hauling sand to the oil patch for hydraulic fracturing and a lack of equipment to continually recycle the millions of gallons of water used to bring wells into production. That has left more than 2,000 wells dormant in the region.

But unless oil prices bounce back quickly, the oil industry's drilling recovery will slow, as will the jobs flowing back into the oil patch.

"With oil at $45, there will be very little movement in capital globally, and fewer projects will get sanctioned," said David Pursell, an analyst at the investment bank Tudor, Pickering, Holt & Co. in Houston. "Is there a chance oil goes to $40? Sure."