12/14/25
S&P 500: 6827
Nasdaq: 23,195
10 Year Treasury: 4.1%
David R. Snyder, CFA
Back in 2022 most investors believed we were in a new oil and natural gas bull market with many years to run. The thesis was that there had been very little investment in oil and gas exploration and services over the prior decade, thus there would be a shortage of supply. I had been very bullish on oil beginning in late 2020, predicting it would outperform in 2021. However, by late spring of 2022 I turned bearish on oil (turned negative on other commodities in April) when oil prices soared above $100 as I thought the higher prices would crimp demand and supply would be better than expected. A very contrarian call ( also became bearish on natural gas in September of 2008). I did extensive research and concluded that Russia’s export of 3.3 million barrels of oil per day to Europe (2.2 million barrels of oil and 1.2 million barrels of refined products) could be rerouted to China and India by sea. Most analysts said Russia did not have enough storage capacity and pipeline spare capacity to transport the rerouted oil to China. But they were able to use shipping routes to transport the extra oil, using “shadow” fleets and bypassing traditional shipping lanes. And they had shipped substantially more oil to these countries at times before the war, giving me confidence that they could do it again. Also, I predicted that non-OPEC oil supply would grow faster than expected.
Russia was able to reroute the European oil exports to India and China with Indian exports increasing the most. In the summer of 2022 when everyone was bullish on oil and natural gas, I recommended shorting the oil price and oil stocks (other than refining), especially the oil service stocks. They have dramatically underperfomed the S&P 500 since then. Early this fall I closed out my oil shorts for the rest of the year. I have been neutral natural gas since the fall of 2024.
My problem with oil is that the long term picture is bleak. According to the EIA global annual oil demand growth grew 1.5 million barrels a day in the last decade, or at a 1.6% annual rate. This decade annual growth has slowed to a 1% rate and the IEA expects it to slow to about 0.4- 0.5% through 2050. Meanwhile supply growth especially non-OPEC is growing faster than expected. In the near-term oil supply is estimated to grow by almost three million barrels per day in 2025 and over 2.5 million barrels per day in 2026 driven by Canada, Guyana, Brazil and the higher quotas for OPEC. Demand is only expected to increase at 1 million barrels per day or slightly more for 2025 and 2026, resulting in a big surplus. Renewable energy will continue to erode demand for fossil fuels. Despite OPEC reversing all of the over three million barrels per day of oil it withdrew from the market since Covid, global spare capacity is still over four million barrels per day.
The OPEC oil cartel is in shambles. Their market share has declined form 50% in 2008 to a current 35%. They desperately created OPEC + to enhance market power but the more members of a cartel (going from 12 to 22 members), the more difficult it is to enforce the cartel’s agreements. Thus, significant cheating has occurred over the last couple of years in Kazakhstan, Iraq and Russia. And Qatar and Angola have dropped out. This will likely continue in the future. And UAE is hell bent on increasing oil production capacity to 5 million barrels a day by 2027, three years ahead of plan. They only produce a little over 3 million barrels a day of oil this year. The cartel is probably keeping oil prices at least $20 higher on average over the last 30 years. OPEC will have less power in the future, causing oil prices to lose its cartel premium.
China demand for oil will increase about 100,000 barrels per day this year compared to growing at an annual rate of 750,000 per day from 2010-15. India will not be the next China as they have the benefit of bypassing building a big oil and gas infrastructure (doesn’t have sunk costs) in favor of mostly renewable energy. They also will not be urbanizing as fast as China did during its growth stage. Indian oil demand growth will be just slightly higher than China’s weak growth this year.
There is also misinformation on the amount of investment that oil companies are making to sustain current oil production rates. The industry is overestimating the investments needed to sustain that production.
Most importantly it is clear that Trump has an agreement with Saudi Arabia and other Arab nations to keep production high during his Presidency. However, Trump does not want oil prices to crash so there is a floor on the price of oil, at least in the intermediate term. Oil stocks are becoming trading and income vehicles, although the income is not as reliable as many investors believe.
As for natural gas especially LNG there should be strong demand in the next few years. Data center growth will be the strongest engine of growth. Thus, the near-term picture is positive, except that LNG producers in the US might have their margins squeezed because of rising US natural gas prices (spreads are narrowing). However, there is significant planned investment in natural gas and LNG in Asia over the next few years, and enormous capacity will be installed. And Russia is building the Siberian 2 pipeline to China that will have 50 billion cubic meter capacity, about a third of the capacity lost from Europe. Russia will find a way to replace the remaining natural gas lost from Europe, further increasing supply. And of course when the AI bubble bursts, demand for natural gas to power data centers will decline.
Full Disclosure: I own several of the securities mentioned positively. None have been purchased within the last month. The opinions merely represent the opinion of the author as CIO of Journey 1 Advisors, LLC and intended to inform the readers about our investment philosophy and strategy. The contents of this report are based on sources believed to be reliable. It is not intended for circulation. It is not intended to offer investment advice, or to recommend the purchase or sale of any securities or investment product. Investment advice is only given after a client has signed an investment advisory agreement with Journey 1 Advisors, LLC and will be subject to the terms and conditions therein. Your decision to buy or sell a security should be based upon your personal investment objectives and should be made only after evaluating the stock’s expected performance and risk.