Oil’s Illusion of Abundance Has Markets Mispricing Energy’s Next Bull Run
Timing the market is tough — but timing oil is a fool’s errand. Since Russia’s invasion of Ukraine, crude has fallen from around $100 a barrel to nearly $60 today. The market appears flooded with supply, demand looks shaky in major economies, and traders are positioning bearishly, like it’s 2014 all over again. However, beneath the surface of this oversupply narrative, the setup is quietly turning bullish.
Supply running on fumes: The IEA estimates that about 80% of global oil output and 90% of natural gas output in 2024 came from fields already past peak production, meaning supply could roll over quickly without major new investment. Even with improved extraction technology, existing wells would crest this year and then decline sharply. While US crude output is at a record 13.8M barrels per day, the International Energy Agency is modeling scenarios where demand keeps rising as countries backtrack on clean-energy commitments, led by the US.
- US Energy Secretary Chris Wright doubled down at Davos, arguing the world would need to more than double oil production as fossil fuel dependence drags on for decades.
- The sector currently operates with less than a third of 2014’s rigs, yet each produces ~4x more oil — what Texas Alliance analyst Karr Ingham calls “brutally efficient.”
The Efficiency Paradox
The US now controls about 20% of global oil production, up from just 8% in 2009, even as the industry has cut its workforce by about ~40% over the past decade. New drilling tech, automation, and consolidation have kept output climbing with far fewer workers. Still, that efficiency doesn’t guarantee stable prices, since energy transitions historically spark volatility as new infrastructure ramps up just as old supply declines.
- Net long positions held by hedge funds remain exceptionally bearish compared to recent years, with most traders still clinging to a “just in time” mentality that assumes trouble will never arrive.
- Venezuela won’t be a quick supply fix, since ramping meaningful output would take years of heavy investment, and the majors still look cautious about rushing back given the political risk.
Head fake territory: Markets are notoriously bad at pricing political risk, since every geopolitical shock is its own messy one-off. In today’s world, that “extra supply” can disappear fast — an Iran flare-up, Latin American instability, chokepoint disruptions, or just faster Chinese stockpiling would do it. The widening gap between bullish stock sentiment and discounted oil has Currency Research Associates warning the odds are rising “that the opposite will happen — equities will fall, and oil will rise in 2026.” For anyone betting low prices are locked in, this head fake could prove costly.