On the surface, the U.S. has much to celebrate. Oil companies here have been pumping record amounts of crude thanks to the shale boom.

But if you look into the five-year price performance of the nine largest U.S.-based oil producers, you’ll see that the best performer – Chevron Corp. (NYSE: CVX) – is down 9.39%.

The worst performer is Devon Energy Corp. (NYSE: DVN) – down 70.76%.

Investors who own these companies are scratching their heads. How can they have such terrible returns when the demand for oil continues to increase?

In 2018, according to BP’s “Statistical Review of World Energy 2019,” the world set a new consumption record for crude at 99.8 million barrels per day (bpd). And it was the ninth straight year of global demand increases.

Demand grew 1.4 million bpd in 2018. However, it was the third year in a row that oil demand growth slowed.

On the production side of the equation, the U.S. is top dog. It increased its lead as the globe’s top producer to 15.3 million bpd.

It all seems very bullish for upstream oil companies. But in reality, there is just too much oil.

Even with Venezuela and Iran’s lowered production, Saudi Arabia, Russia and the U.S. are pumping record amounts of crude. Other OPEC members are also producing crude in record numbers.

And the glut is only going to get bigger. U.S. producers could add another 5 million bpd to the 15.3 million bpd they currently produce.

All that production comes at a price.

Over the last four years, about 175 companies in the oil and gas sector filed for bankruptcy. They had debts totaling $100 billion.

As a group, U.S. producers are doing what they do best: drill wells, and produce oil and natural gas liquids.

Unfortunately for them, they have overproduced. And they continue to do so.

They have effectively shot themselves in the foot.

But it’s not just overproduction that’s causing shares to tank…

With U.S. tariffs in place and set to possibly increase, the Chinese economy is slowing. Even though it uses “only” about 13.2 million bpd, its demand is slowing.

China’s diesel demand dropped by 14% in March and another 19% in April. These levels have not been seen in a decade.

Domestic demand for gasoline has also slowed. That has created a glut within China, and refiners are curtailing production as a result.

All this oversupply is keeping oil prices from rising. And prices are staying low even in the face of geopolitical concerns in Iran and elsewhere.

I don’t see any curtailment of global crude production anytime soon. And that’s going to keep shares of U.S. crude producers tanked.

My advice is to stay away from the oil sector.

Good investing,

Dave