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At The Current Global Supply And Demand Deficit, We Will See $100/Bbl Oil Soon



  • At the current pace of inventory draw, we are headed for triple digit oil prices.
  • China has been strategically draining crude inventory and shunning crude on the open market. But this won't persist and it presents a ~2 mb/d of tailwind.
  • If global oil demand continues to recover, global oil inventories will decline below the 2010-2014 norm.
  • If oil does reach $100, there will be a lot of FOMO in the market with generalists rushing in.
  • This idea was discussed in more depth with members of my private investing community, HFI Research. Learn More »

Oil pumps on the background of 100 dollars.Oil industry concept. Raising prices chart

Andrii Zorii/iStock via Getty Images

Note: This was first published to HFI Research subscribers as part of our weekly flagship report.

This is not a prediction. Instead, we just want to highlight a few things with data and charts to illustrate

HFI Research, #1 Energy Service

For energy investors, the 2014-2020 bear market has been incredibly brutal. But as the old adage goes, "Low commodity prices cure low commodity prices." Our deep understanding of US shale and other oil market fundamentals leads us to believe that we are finally entering a multi-year bull market. Investors should take advantage of the incoming trend and be positioned in real assets like precious metals and energy stocks. If you are interested, we can help! Come and see for yourself!

This article was written by

HFIR profile picture
HFI Research is focused on investment ideas within the energy sector. The goal is to find contrarian opportunities in the oil and natural gas markets. Members of the investing group Learn more.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of BTE either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (215)

I'm toying with 2 scenarios
1)Oil stocks go sideways until the French election in may then go up -

or 2)The fact the Japanese have already dipped into reserves & monthly inflation has just boomed from 0.9 to 1.5% & retail sales have outperformed - rate rises could be due soon - meaning the unwinding of trades - the dollar strengthening & Commodities priced in dollars falling - until the French Election then go back up.
short EUR/USD since July - based on China slowdown - just added to position
Stanford4 profile picture
Russia failed to boost oil output last month despite a generous ramp-up quota in its OPEC+ agreement, indicating the country has deployed all of its current available production capacity.

Isn't OPEC planning on another 4mm bpd increase in production over the next year or so? Some countries might struggle with that, but most of that comes on line, I think.
@kenberthiaume Even if they are able to do so, it will take more than that just to overcome decline curve. If economies strengthen, and air travel recovers more, well..........
Diamond-Hands profile picture
@pg guy The 4mm bpd increase is net of decline curve. Otherwise it wouldn't be an increase, right?
@Diamond-Hands Maybe I didn't express it clearly, here's another try: If OPEC increases 4mm bpd, it might not even offset the decline of the rest of the world.
As much as I like HFIR, this article came out on Nov. 2, and crude was at $84 and change. Putting out a buy, buy, buy article at the top isn't a good sign. Great information from HFIR, but a wrong conclusion.

If only this was an isolated incident...(sigh).
HFIR profile picture
@labradoodle incorrect, we published on Oct 25th noting that a near-term peak is in: seekingalpha.com/...
HFIR profile picture
@labradoodle From the article on Oct 25th:

So how do we know that oil prices and energy stocks are done with the consolidation?

Technical indicators reset slightly with overbought conditions returning to normal. Unlike the sell-off we saw after June where prices corrected steeply lower, we see this pullback as mild given the supportive oil price backdrop.

Most energy stocks will likely retest the 61.8% retracement if they haven't done so already. A successful retest will likely signal an even higher high after year-end.

Physical oil market indicators should continue to be biased to the bull side with data confirming the recent oil price action.

In essence, we see this correction ending by the end of November.

I re-read this article and the second to last paragraph DOES SAY "...as this near term consolidation takes place, put your money in the right names and they should benefit significantly."

I hereby apologize and take back my previous post. I'm sorry. The tenor of the article had an 'all systems go' feel to it, which must account for my take on it.
@HFIR any update on the capital rotation theory? Nasdaq is still on a rocket at ATH. Doesn't look like it lost any fuel to the value group.
@HFIR interesting, thanks. Noticed a slight difference though - In 2000, both $compq and $compq:$SPEN peaked around the same time in Mar2020, but recently, $compq:$SPEN peaked around Nov2020, and $compq is still hitting ATH today in Nov2021.
Mad Banker profile picture
Expect OPEC+ to just pay lip service to the cry for help.

Why would OPEC+ and domestic drillers try to produce more oil & gas to help people who's main aim is to put you out of business every chance they get.

Never let a crisis go to waste!
@Mad Banker One answer: "To make a quick buck."
OPEC + will at least try to increase production if the see US shale activity pick up dramatically.
PT Larry profile picture
Thanks for the article.
A little game to play: what day will Brent hit $100? I’ll start by guessing December 15….
Biden: “The idea that Russia and Saudi Arabia and other major producers are not going to pump more oil so people can have gasoline to get to and from work, for example, is not right,”
That was too much pressure on Opec+, lol. Oil is down $4 today.
Kirk Spano profile picture
oil inventory is not low by a long shot

@Kirk Spano
Look at Cushing
@Kirk Spano

"What's more, I do not see contango disappearing unless the oil glut greatly dissipates causing spot and near term oil futures prices to rise. Without a war, I do not expect the oil glut to ever disappear."

"The lower for longer scenario is all but assured for oil prices"

"Even if a Middle East war should occur, oil has little likelihood of seeing sustained oil prices over $60 per barrel for decades"

"In the end, I think there's a greater likelihood of oil demand never reaching previous highs than getting there before 2022"

"War in the Middle East that significantly disrupts production long term is the only path I see to oil prices higher than $60 this decade for anything more than a hot minute."

Ah, yeah, looking back at some of your greatest hits. Good stuff!
@Kirk Spano inventories are definitely not that low. People make the same mistake in both oil & gas, but the inventory situation in each is wildly different. Forget 5 year average of gross level and look at demand days cover on long term basis. Oil inventories in US have been high since the 2014 debacle. Oil is currently not tight, gas is tight.

More importantly for oil, look at China, the largest importer. Oil storage not tight.

The thing that is attention getting is the rate of change of draws, which are large. The unknown is OPEC+ ability/willingness to stop the draws. This is where ex post rationalization comes in. The bulls say: OPEC+ spare capacity not large enough to save us & shale has religion, the bears say OPEC+ can add barrels anytime they want.

Let's see how it develops.

I was formerly of view that at YE 2021 we would see the oil market super tight. I am currently very worried about China in 2022 as they seem to be reining in the FAI excesses and have tempered that view.

We shall see.
edaskew profile picture
The problem with trying to predict what will happen with Chinese consumption is knowing what will happen when they ultimately go from a zero Covid policy to endemic Covid, which at some point they must. I don't claim to know what will happen, but I suspect there will be some pain involved. It will involve some damage to their economy and some decrease in consumption, and it could be pretty bad.
eastberks44 profile picture
@edaskew Anything must be better for their economy than having random total lockdowns every time there's a single case.
@Snake Oil Pussy Their lockdowns have been total but not random. They have been hyper-local their response whenever there has even been a sniff of an outbreak. Pretty brutal for those locked down but incredibly effective at protecting the economy.
edaskew profile picture
@Steve__C Only now do they have to deal with Delta. Lockdowns won't work with Delta. All they can do is slow it down, but they can't stop it.
Meanwhile, multiple firms just lowered their guidance on XOM to $50/share.

We continue to see two obvious things:
1 Renewable continues to thrive around the globe.
2 Misinformation of renewables persist, but has been impotent to slow renewable adoption.
@1504661 it will take many years for renewables to replace fossil fuels in the colder countries like Canada and most of the developing countries can't afford a switch to renewable energy ie India, Indonesia and Africa. In a lot of countries there is no economical replacement for fossil fuels and even with a few green options it will take years to build out the infrastructure. long Western Canadian oil & gas and keep pumping that nat gas to our house in Ottawa cause it gets cold here in the winter
@1504661 Clueless. What planet do you live on? Renewables continue to disappoint, both in terms of energy delivered and economics.
The poor souls in Tulsa, Little Rock, Birmingham and other small insignificant towns are being sold malicious lies about renewable.
The world is moving forward despite their ignorance.

Renewable continues to successfully thrive around the world.
Only lesser educated people believe that renewable is untested, precarious or unstable. Some of the very same poor souls who complain that renewable is "doomed" currently pay a month utility bill to a company supplying them with renewable. It's very sad.
Stanford4 profile picture
BP says global oil demand has passed 100 million barrels per day
Blackmolly profile picture
It may happen sooner than most people expect.
2 words - base decline.
Blackmolly profile picture
@Vihrun 5% a year.
Where is @Kirk Spano ?? He said oil would not rise above $80-must have shorted it. Hey, BofA is ahead of you, they say $100 imminently(ie. this winter) and $120 in H12022. Sure the smaller E&Ps will rise but for sustained returns I have to bring up two dividend doublers, CVE & SU, the integrated ones will ride this for a decade. Let the good times roll!
Kirk Spano profile picture
@jim1017 Actually, I said oil would get to 80 when it was in the 40s, it took a little longer than I thought. So, I shifted to clean energy and made more than folks who stuck in oil. And, I'll do better throughout the decade with that approach. I also own AMTX from single digits, NFE from around $20 and KMI.
@jim1017 good job. You made him post about his stock winners to try and save face.
@Kirk Spano You got very bearish on oil never recovering at the debts of the 2020 price crash. Oil has recovered and some. Many of the stocks we were buying then are now 5 to 10 baggers with lots of room still left to run.
PapaWhisky profile picture
No acknowledgement here that $100 oil will reduce demand
Yep, going to fill up my car with whisky and jump in a solar powered plane.
PapaWhisky profile picture

True, I guess.

Oil demand is absolutely inelastic and no one ever at all, at anytime, never postponed a trip because gas was $5 /gallon.

nope nope nope ... doesn't happen
nice analysis~~and the question is ~~how much spare production capacity does OPEC really have ?
TheOldHand profile picture
@mac1943 Ah, a really good question. With a purposefully obscured answer.
Most likely 3 million BBLS/Day, or less.
Mostly just 3 countries. Others in OPEC could not produce recent quotas
Interesting possibility.
Nice article as always
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