Editor’s Note: Before you begin reading your report, “Oil Forecast 2025: A Contrarian Perspective,” we wanted to share this timely message from our resident oil expert, Keith Kohl.
Buffett’s $12 Billion Bet
Warren Buffett is making big waves in the oil industry…
Recently, the Buffett-backed energy firm, Occidental Petroleum, made a substantial $12 billion acquisition of CrownRock, a privately owned shale oil driller operating in the Permian Basin…
This move comes on the heels of Buffett’s massive $10 billion investment in Occidental Petroleum, a key player in the Permian Basin.
The Permian oil Basin, located in West Texas, is not just America’s most prolific oilfield, accounting for a staggering 44% of the nation’s oil production…
It’s even producing more oil than most OPEC countries.
Buffett’s big investments indicate his keen interest in securing a larger share of this lucrative oilfield.
However, what’s not grabbing the headlines is an even more significant development in the Permian Basin, one that remains off most investors’ radars.
A small Texas oil company has developed a new drilling method that could be the most significant breakthrough in the history of oil production…
One that stands to DWARF the riches generated by the fracking boom.
It’s called the “Horseshoe Well”.
The Journal of Petroleum Technology says this revolutionary method is a “design unlike anything most have seen in the shale sector before.”
And it’s set to usher in an oil boom unlike anything we’ve seen in the history of the oil markets.
Grab hold of the details here while you still can.
Oil Forecast 2025: A Contrarian Perspective
This contrarian perspective challenges prevailing assumptions and highlights potential investment opportunities for those who are willing to look beyond the headlines.
The Fate of Crude Supply in 2025
All the geopolitical risk can drive up the price at the drop of a hat, but following the underlying fundamentals is what will really set the tone of prices in 2025.
Unfortunately for the bulls, they may be running out of time. As you know, the fourth quarter of 2024 was expected to be extremely tight from a supply and demand standpoint.
The EIA reported Brent crude prices are expected to average $78 per barrel, a slight decrease compared to this year, and $7 per barrel less compared to last month’s projections.
According to their estimates, U.S. oil production will average 13.5 million barrels per day, which would be a slight 2.2% year-over-year increase. Whether that output increase will materialize remains to be seen, especially given that our crude production has been flat for most of 2024. As we head into the wintery months this year, when crude prices are generally at their weakest, there are just 481 rigs drilling for oil in the United States. That’s about 20 fewer than this time last year.
If you’re betting on non-OPEC supply growth, then you’re praying that Guyana and Canada can follow through with raising output.
Meanwhile, the wildcard is still the OPEC+ alliance… and this is where you run into some issues.
In June 2023, OPEC+ announced it was going to reign in some of the cuts that were in place, which prompted oil prices to immediately sell-off.
Can you spot the problem?
Now in late 2024, everyone is expecting OPEC+ to start raising output in December, and then continue doing so throughout 2025. Analysts and investors alike are taking it as a given without any shred of worry.
Don’t hold your breath on that one.
I know the headlines today may be calling for OPEC+ to “open the floodgates” on its production, but that’s a bit hasty, and I have a feeling that they’re setting us up for a major disappointment.
Remember, the group recently cut its forecast for global demand growth for both this year and 2025. If China’s latest stimulus plans don’t alleviate fears of an economic slowdown there, it would give OPEC+ precisely the reason they need to keep output at reduced levels.
I’ve mentioned before that between the conflicts raging in the Middle East and OPEC+ more than willing to defend oil at $70 per barrel, non-OPEC supply is going to play a key role in 2025.
Because of that, we’ve seen Big Oil invest an exorbitant amount of cash to consolidate their position in premiere oil plays like the Permian Basin. In the first quarter, 266 deals were made at a value of over $100 billion. During Q2, another 240 deals worth nearly $70 billion were announced.
These dealsWILLcontinue in 2025.
That alone puts a huge premium on the small, hidden gems in the U.S. oil patch. But more on that later…
The Demand Delusion Continues
Difficult as it is to believe, OPEC isn’t the worst offender in this game of deception.
Last week, we took a look at the fate of the world’s crude supply in 2025 and how non-OPEC supply growth will be carried by Guyana, Canada, and Brazil.
Keep in mind that U.S. oil production growth will be limited next year, which is being optimistic. The EIA’s latest projections are that U.S. output will average 13.5 million barrels per day in 2025, which is only a 2.2% year-over-year increase compared with the 13.2 million barrels per day it’s expected to average this year.
Any hiccups in non-OPEC production means we’ll be relying even more on OPEC to follow through with plans to ease its production curtailments. As you might imagine, it’s hard to see OPEC putting more crude onto the market when prices are around $70 per barrel.
When the International Energy Agency released itsWorld Energy Outlook 2024, it was an overly optimistic attempt to put downward pressure on crude prices… but that’s about par for the course, isn’t it?
After all, we’re talking about the same IEA that is projecting a peak in oil demand before 2030, followed by a return to 2023 levels around 99 million barrels per day by 2035.
Today, it’s well over 103 million barrels per day.
What’s interesting is that however bearish the IEA is on oil demand going forward, the market is telling us otherwise.
But if demand was as weak as media headlines tell us, then why are global oil inventories so low? The truth is that global crude inventories are far lower than you might think; this summer, inventories reached 120 million barrels, which is 4% below the 10-year average.
If this continues, I think we’ll see OPEC delay any planned output increases, which will send those massive oil shorts on Wall Street rethinking their position.
And remember, this is all assuming that geopolitical volatility doesn’t boil over into open conflict like it did in Ukraine two years ago.
2 Oil Companies Highlighted For Their Potential In This Environment Are:
- Pioneer Natural Resources (NYSE: PXD) – As a dominant player in the prolific Permian Basin, Pioneer is well-situated to benefit from escalating oil prices. The company’s scale, efficiency, and robust financial standing make it a dependable performer in a potentially volatile market.
- Cenovus Energy (CVE) – With the Trans Mountain pipeline expansion completed, Cenovus gains entry to profitable Asian markets, extending its reach beyond North America. This strategic advantage allows Cenovus to access a wider customer base, including rapidly growing economies like China. The company’s projected production increases, coupled with its current undervaluation, make it an appealing investment opportunity with potential for significant growth in 2025. Cenovus Energy aims to boost output by almost 20% in the next five years.
The Oil Stocks I’m Buying On the Dip
I don’t think any of you should be surprised by the first oil stock I’m buying on the next dip.
With OPEC+ firmly in control of the global supply capacity this year, the game has changed somewhat. And whether the media believes it or not, U.S. outputIS NOTgoing to grow much higher this year.
What that means is if the market tightens —as I fully expect it to this summer— it’ll be the oil princes in Saudi Arabia who will be in the driver’s seat.
That makes the companies keeping our crude output at record levels so incredibly important, because every barrel of production that we lose will be another bit of leverage for OPEC+.
And at the risk of sounding like a broken record, the oil game in the United States has changed completely from the early days of the shale boom, when a debt-fueled drilling frenzy pushed production higher.
That’s what makes oil stocks like this one invaluable going forward.
You can check it out for yourself right here.
The second oil stock you should be looking for isn’t located in the United States, and I guarantee you that you won’t see it splashed across media headlines.
Within the next few months, the Trans Mountain pipeline expansion is going to finally be completed, which will open up the Canadian oil sands to be exported across the Pacific. Up until now, the only market these Canadian oil companies could really tap into has been the United States.
Players like Cenovus Energy (NYSE: CVE) are planning to boost output by nearly 20% over the next five years, and will soon have access to key Asian markets like China.
Not only will it have access to more oil-hungry customers like China, but is trading at strong valuations right now.
Personally, I think it’ll be a 2024 winner that’ll surprise you. Will we see $100 oil in 2024? I don’t know if it will run that high, but it’s possible. What I do know is, you do not want to sit on the sidelines for the coming months.As a dominant player in the prolific Permian Basin, Pioneer is well-situated to benefit from escalating oil prices. The company’s scale, efficiency, and robust financial standing make it a dependable performer in a potentially volatile market.