The demand side of the market will undergo an important structural change.
Hello reader.
The United States and Iran agreed on Tuesday to a conditional ceasefire for two weeks.
The deal comes after weeks of violent conflict between Iran, the United States and Israel that has seen drone strikes across the Middle East, attacks on oil infrastructure, and the disruption of global shipping and energy markets.
Now, declaring victory in the oil market crisis due to a two-week ceasefire is a bit like leaving the emergency room on painkillers.
The underlying injury has not healed. The surgery didn’t happen. The doctor has already warned you that the anesthesia wears off quickly.
The markets’ rally this week – and the brutal sell-off it sparked Energy stocks – Reflects the medication, not the diagnosis.
The outlook for global oil and gas markets remains highly uncertain, and investors who panic over their energy positions may find themselves on the wrong side of one of the most significant structural shifts in the history of global energy markets.
So, on the day Smart moneyI will detail the five reasons why oil and gas will not return to normal anytime soon.
Then, I’ll share with you why the recent ceasefire-induced sell-off is masking larger supply problems that will likely keep US oil and natural gas prices higher for longer… and why it means the energy bull market is far from over.
Why are oil markets still unstable?
1. Ceasefire agreements are very fragile
Short ceasefires have a poor record of transforming into lasting peace. It’s like the interval between rounds of a boxing match – as soon as the bell signals a return to the center ring, the punches are flying hard again. In this particular match between the American-Israeli alliance and Iran, any lasting peace agreement must overcome a huge deficit in trust.
2. The backlog on conveyors will not be cleared within two weeks
Even if the ceasefire holds perfectly from this point on, the physical plumbing of the global oil market does not repair itself overnight.
Nearly 187 tankers carrying 172 million barrels of seaborne crude oil and refined petroleum products remain sunk inside the Persian Gulf. Another 800 ocean-going vessels of various types are also blocking the Gulf’s shipping channels. A backlog of this size would likely take more than two weeks to clear, even under normal circumstances, according to Dejin Lee, global head of research at Fertmax FZCO.
3. Iran now controls the toll booth
Even in the best-case scenario for a ceasefire, Iran appears to have permanently changed its relationship with the Strait of Hormuz. The country is now a toll taker.
In recent weeks, Tehran has imposed fees on shipping companies of up to $2 million per tanker to ensure safe passage through the strait. This is a major revision of the marine choke point’s previous status as a free route. Now that Iran has discovered this “easy money,” it is unlikely to give it up without compensation.
4. The physical infrastructure is damaged
The energy market appears to view the Iranian conflict as merely a logistical disruption. But somatoform disorder is much more serious and long-lasting. War-related damage extends across the entire Gulf region, from Kuwait to Qatar to the United Arab Emirates, and has accumulated over six weeks of sustained strikes on energy infrastructure.
5. Aggressive restocking will accelerate demand
The final reason “normal” won’t return anytime soon is because of my behavior.
Countries hobbled by this crisis will not leave without building larger strategic reserves and diversifying their supply chains. Energy and commodity markets are likely to remain at a structurally higher level regardless of the outcome of the ceasefire, said Matt Gertkin, US political strategist at BCA Research. As governments stockpile and restock oil in anticipation of renewed conflict, this continued demand will keep oil and gas prices well above pre-war levels, even in a shipping resumption scenario.
This is the part of this story that gets really interesting for energy investors…
The hidden winner: US natural gas
While oil grabs all the headlines, the real strategic beneficiary of this crisis is US natural gas – and prices are actually at an all-time high. minimum than they were when the war started.
Why? Because natural gas prices in the United States are determined primarily by domestic supply and demand. Currently, US gas production is at record levels, with more gas coming out of the ground than ever before in history. This abundance has limited prices at home.
But the global picture is exactly the opposite. European gas prices have more than doubled since the start of the war. Asian LNG (Liquefied natural gas) Standards have risen. The result is a historic and growing gap between cheap American domestic gas and the desperate global buyers who need it.
This spread will not disappear. It is the foundation of long-term structural transformation.
The United States is the world’s largest exporter of LNG, and with the largest additional LNG capacity available, American producers are positioned to play a critical role during this historic turmoil.
Even if the ceasefire leads to a real peace agreement, the global oil and gas market will remain “sick” for several months.
At the same time, the demand side of the market will undergo an important structural change. Countries and companies accustomed to a “just in time” approach to oil inventories will adopt a “just in case” approach.
They will stock up. They will diversify energy sources. They will sign long-term contracts with suppliers that sit outside the blast radius of the conflict in the Middle East.
This means US LNG. This means American producers.
For this reason, in my country Fry investment report In my portfolio, I recommend three energy companies that can leverage their geographically desirable crude oil production and strong natural gas production potential.
they…
- A large US shale producer known for its disciplined capital returns and variable dividend strategy.
- The smaller, growth-oriented US oil producer has focused on efficient drilling in a few core basins.
- Argentina’s largest integrated energy company, combining primary production, refining and fuel distribution.
To learn more about the opportunity each of these companies offers, click here.
It is considered,
Eric Fry
