The oil industry just can't seem to snap out of its doldrums this year. Crude remains stubbornly low, which has stalled the industry's attempts at a recovery. However, while weaker prices have been bad for oil producers, they've been great for consumers because it has kept prices for refined products like gasoline down, which is fueling robust demand growth this year. That said, this accelerating demand hasn't been enough to propel the oil market, due in part because shale drillers have unleashed a gusher of new production. 

Drilling down into the latest numbers

That give and take market was on display this week when the International Energy Agency (IEA) released its monthly commentary. One of the highlights of the report was recent data showing accelerated demand growth. Last quarter, for example, demand grew by 2.3 million barrels per day (Bpd), which is up 2.4% year over year thanks to higher than expected consumption in the U.S. and Europe. That strong showing drove the IEA to ratchet up its 2017 growth forecast once again. It now expects oil demand to grow by an average of 1.6 million Bpd this year, up from its view of a 1.4 million Bpd increase two months ago. That continues the trend of rising demand, which is now well above where it was a few years ago when crude was in the triple digits:

A chart showing world oil demand growth since 2013.

Image source: IEA.

Typically, accelerating oil demand like this would drive up crude prices, but that hasn't been the case this year. That's because the industry continues to battle two related headwinds that are counteracting the accelerating demand. First, after years of overproducing, oil stockpiles remain elevated at more than 3 billion barrels last month, which the IEA noted was 190 million barrels above the five-year average for this time of year. The reason there's still so much oil sitting in storage is that production remains robust. While global output was 720,000 Bpd lower in August due to unplanned outages and scheduled maintenance, it's up 1.2 million Bpd an average from last year according to the IEA even though OPEC is in the midst of a coordinated effort to reduce supplies.

Why in the world are we still awash in oil?

There's a two-fold reason why global oil production still isn't coming down even with OPEC's best efforts. For starters, two of its members, Libya and Nigeria, are currently exempt from the production reduction agreements. Because of that, OPEC's output had actually risen for five straight months before falling in August after renewed turmoil in Libya disrupted its production.

A group of oil pumps at dusk.

Image source: Getty Images.

The other issue is that shale drillers in the U.S. have delivered much higher production rates than expected due to efficiency gains and other innovations. Those improvements have fueled game-changing well results, with several shattering records this year. For example, this past spring EOG Resources (NYSE:EOG) reported monster well results in the Delaware Basin that straddles Texas and New Mexico. The company's four-well Whirling Wind pad delivered an average 30-day initial rate of 5,060 barrels of oil equivalent per day (BOE/d) per well, which EOG's CEO Bill Thomas said, "shattered industry records in the Permian Basin." Thomas attributed the success to EOG's "advanced technology and proprietary techniques" that are "leading to break-through well performance across our diverse portfolio of premium plays."

Meanwhile, in Oklahoma, producers are smashing records one after the other. In July, Devon Energy (NYSE:DVN) unveiled a record-setting well in the STACK play that hit an initial peak rate of 6,000 BOE/d. Devon pointed out that it "achieved the highest initial production rate of any well by a wide margin" thanks in part to a new proprietary completion design. That said, rival Continental Resources (NYSE:CLR) topped it a few months later when its Tres C well hit 7,442 BOE in its first day of production.

What's also worth noting is that even the wells that aren't setting records have been exceptional. In the STACK, Continental Resources expects an average well to deliver 2.4 million BOE over its lifetime and generate a stunning 80% rate of return at $50 oil. Meanwhile, EOG Resources' premium-return wells are producing twice as much oil in their first year as non-premium ones while Devon has delivered a 450% improvement in the initial 90-day production rates of its wells since 2012. Add to that the fact that EOG Resources' premium wells earn a minimum after-tax rate of return of 30% at $40 oil and Devon estimates that it has 30,000 potential locations in both the STACK and Delaware plays that are profitable around current prices, and these drillers see no reason to slow down.

Still a well-oiled market

Consumers are devouring oil this year. However, that hasn't moved the needle on crude prices since shale drillers are unveiling gusher after gusher, which is keeping oil storage tanks filled to the brim. While some weaker producers have tapped the brakes on new drilling because prices have come in under expectations, many others are still accelerating. That'll likely keep a lid on oil prices in the near-term, which could keep most oil stocks at bay. Though, given the returns some top-tier producers can earn, they still have the potential to fuel healthy growth for their investors at the expense of their weaker peers. 

Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.