Timing the Bottom In Oil

Every investor wants to time the bottom. 

Why wouldn’t they? That’s the name of the game, isn’t it — buy low, sell high. 

Those are the moments we crave as investors, with a certain thrill that catches hold of you as a bearish sentiment permeates the market, as if they’re either unwilling or afraid to accept the reality of the situation at hand. 

We’ve both seen this happen several times in the oil market over the years. 

In fact, the last great oil reset that comes to mind occurred after crude prices plummeted just after the world locked down from COVID during the summer of 2020. I know more than a few of you in our Energy and Capital investment community saw that opportunity for what it was. 

At one point crude oil in April of 2020 was trading at negative $37.63 per barrel. 

We need to stop and think about that for a minute to truly appreciate what happened — people were willing TO PAY YOU close to $40/bbl just to take their oil off their hands!

Anyone that recognized negative oil prices for the huge buying window in the oil sector went on to truly build generational wealth, all they had to do was let their patience play out. 

Less than two years later, the price of WTI crude was trading above $120 per barrel as Russian tanks started rolling onto Ukrainian soil. 

You could’ve blindly thrown a dart against the wall of oil stocks and raked in a fortune. Today, I feel just as incredulous after oil’s recent price drop into the $50s. 

Do you feel it?

Well, let’s break it down then, shall we?

Yesterday, I mentioned the abrupt u-turn that Energy Secretary Chris Wright made regarding $50/bbl oil. I told you that there was a disconnect from reality in the oil market; that disconnect is being driven by a few misconceptions. 

The first one is over global supply should President Trump pull off a miracle and find a resolution to the Russian-Ukraine war. 

Look, I understand that it might make a little sense to argue that once a peace deal is reached that the market will suddenly be flooded with more Russian crude. Forecasts across the board, from the EIA to the IEA, believe that’ll be the case.

However, I would argue that we’ll see upward pressure on crude prices if peace prevails. Remember, countries like India and China are more than willing to buy Russian crude right now — at a nice discount, I might add — through a variety of evasion tactics, such as the shadow fleet of older tankers out there that are transporting close to 70% of Russia’s oil exports. 

We saw the same thing with Iranian sanctions. One of the worst-kept secrets out there is that Malaysia has become a hub to get Iranian crude oil to market. Do you find it shady at all that the country is exporting more crude oil than it produces? 

Don’t worry, I do too. It’s one of the reasons why sanctions and price caps can be  toothless when it comes to controlling global supply. When the G7 agreed to put a $60/bbl price cap on Russian crude, it essentially put the bottom in for oil prices. Trust me, we’ll see the price of Russian crude soar — and global oil prices along with it — once that price cap is lifted. 

Granted, this isn’t to mention the fact that the summer driving season is right around the corner, at which point we’ll be entering the season when U.S. demand is at its greatest; nor does it account for the fact that despite stagnant production growth in the United States, demand remains healthy. 

Are you starting to put the pieces together now?

If you haven’t yet, perhaps it’s time for you to start looking for those investment gems in the oil market.