The article below is an excerpt from our Q2 2025 commentary.

The world has decided it does not like oil. One would be hard-pressed to find another commodity so roundly scorned, so dismissed as a relic of another age. And yet, history suggests that such moments of universal disdain are precisely the moments when fortunes are made. We believe oil could well be the best-performing commodity of the next five years, perhaps of the decade.
The choreography of a bear market is familiar. Prices fall, an explanation takes hold, and the explanation hardens into doctrine. Each new downtick becomes evidence that the story was right all along. Investors huddle together in certainty, never noticing that the ground beneath them has begun to shift. The narrative, convincing at first blush, eventually blinds its believers. And when the fundamentals quietly reassert themselves, the crowd is left bewildered, caught on the wrong side of the trade.

Twenty-five years ago, the pariah of the financial world was not oil but gold. Nixon had slammed shut the Treasury’s gold window in 1971, breaking the dollar’s last tie to bullion and ushering in the age of pure paper money. Inflation raged through the decade, and no one knew whether the experiment would hold. Then came Paul Volcker, raising short-term rates to levels that nearly scorched the earth — 20 percent. Inflation broke, financial assets soared, and gold was left standing in the corner like an embarrassed guest at its own party.

Through the mid and late 1990s, central banks hurried to unload what now seemed to be useless yellow metal bricks, trading them for bonds that actually paid interest. Near panic selling gripped gold markets as central bankers rushed for the exits. Disorder escalated and in September 1999 the US Treasury ordered central bankers to convene in Washington, forcing them to sign the “Washington Agreement”— in retrospect, a gentleman’s pact determining how much the of the “barbaric relic” could be sold without embarrassing one another. Andy Smith, in his widely-read “Precious Thoughts” column, explained with authority why gold was a relic of the past. And the market agreed: from 1980 to 1999, the price collapsed by 70%, finally bottoming at $252 an ounce, just before the British and Swiss made their last, humiliating disposals. An ounce of gold bought only seven barrels of oil multiple times between 2000 and 2003, the lowest ratio ever recorded. It was, in hindsight, absurdly cheap. I was one of the few stubborn optimists left, telling Forbes in 2000 that gold would be the best-performing asset of the decade. The irony, of course, is that not only was that prediction borne out, but gold has turned out to be the best performer of the last quarter-century. Central banks, once the great sellers, are now the great buyers — especially in the emerging world.

Today the unwanted house guest is oil. To most investors it is a museum piece, a sooty relic of the industrial age, bound to be replaced by the clean inevitability of electricity. The numbers tell the story of its disgrace: crude peaked at $145 a barrel in the summer of 2008, amid the frenzy of a short squeeze, and since has endured a grinding seventeen-year bear market. Including a first in commodity history: on April 2020, in the COVID inspired panic, a barrel of oil traded at minus $40 barrel on the NYMEX futures exchange. Oil prices today, still sit 60% below their 2008 peak. Energy’s share of the S&P 500 has withered from 14 percent in 2011 to under 3 percent. This spring, a single ounce of gold bought fifty-seven barrels of oil — a record exchange, save for that surreal moment in 2020 when oil briefly went negative.

In 1999, it was gold that was mispriced, crushed by a narrative that proved incorrect. For the next 12 years gold—and let’s not forget gold shares-- were by far the best performing asset class. In September 1999 an ounce of gold bought less 7 barrels of oil, that same gold ounce back in April bought 57 barrels—over 8 times more.

The mispricing of oil today is as extreme as gold’s mispricing was back then. The bearish narrative gripping gold markets back in 1999 proved to be incorrect. The bearish narrative gripping global oil markets today will prove to be equally wrong. We have now come full circle: it’s time for oil, and oil related equities to confound consensus opinion and become market leaders.

The most articulate spokesman for oil’s funeral service is the International Energy Agency. According to the IEA, the world is awash in crude today and will be drowning in it tomorrow. T he surplus, they insist, is not a passing squall but the beginning of a permanent glut, as electric vehicles grind demand to a halt while supply marches forward unhindered by the lack of demand.

In its latest Oil Market Report, the IEA declared that during the first six months of this year, supply outran demand by 1.2 million barrels a day — no small figure. Worse, the imbalance, they say, will nearly double in the back half, swelling to 2.3 million barrels a day. And next year, they promise, comes the coup de grâce: a 3.0 million barrel-a-day surplus, the largest ever recorded. For context, the pandemic year of 2020 — with airplanes grounded and cities locked down — produced only a supposed two million barrel daily surplus—a f igure that most veterans of the trade still suspect to be over-estimated.

The IEA’s longer view offers no reprieve. In its Oil 2025 report, the agency peers ahead to 2030 and sees only a deepening surplus. Between 2026 and 2030, global demand, it says, will inch up by barely a million barrels a day in total, while supply from non-OPEC producers and OPEC’s own natural gas liquids will grow by 1.3 million. Unless OPEC+ performs a miracle of self-restraint, the world will be swimming in crude for years to come.

Small wonder, then, that investors have fled. Speculators on the NYMEX hold the smallest net long position in fifteen years. Equity investors have followed the script: shares outstanding in the big oil ETFs are down thirty percent in a single year. Yet in all this stampede to the exits, very few pause to ask the question that matters most: what if conventional wisdom is wrong?

We have, in fact, seen this play before. Between 2003 and 2007, the IEA dutifully predicted each year that the market would be awash in surplus — about 1.3 million barrels a day, on average. At the time, the oil market was forty percent smaller than today, which made those projected surpluses every bit as menacing as the ones now being forecast.

Reality, however, declined to cooperate. Through 2006 the market held roughly in balance, and by 2007 it had slipped into outright deficit. Investors, having trusted the script, found themselves blindsided. In their rush to correct, they drove crude from $36 a barrel in 2004 to $100 by early 2008, and finally to $145 in a frenzy of short covering. The error was no mystery: too much faith in non-OPEC supply growth, too little allowance for demand. Our analysis suggests that history is about to repeat itself.

In what follows, we will examine the seven central misconceptions behind today’s bearish outlook. The shales, being a story unto themselves, we reserve for a separate section.
Misconception #1: The market is currently in surplus
On paper, the first half of 2025 looked grim: the IEA reported that supply exceeded demand by 1.2 million barrels a day, a bearish starting point if ever there was one. Their calculation was tidy: the “call on OPEC” was 26.5 million barrels a day, actual OPEC output was 27.75, and therefore the world was oversupplied. Case closed.

Except the excess barrels refused to appear. A surplus of that size should have sent global inventories ballooning. Instead, they fell — drawing down by 10 million barrels since January. Faced with this awkward fact, the IEA consigned the discrepancy to a catch-all category labeled “miscellaneous to balance.” Our readers will recognize this for what it usually is: not “miscellaneous” at all, but simply “missing barrels,” a polite admission that demand was understated. In the past, such items have been the surest tell that revisions will come later — always upward.

Strip away the bookkeeping, and the picture looks different. Since September 2022, global inventories have hardly budged: commercial stockpiles down 10 million barrels, government reserves up nine. In other words, the market has been in balance for nearly three years — all while spot prices have dropped by almost 30 percent. The market is not in surplus – instead it has been nearly perfectly balanced.

Misconception #2: Demand growth is weak and slowing

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