Equities are soaring, gold has doubled in two years, and bitcoin trades as if gravity doesn’t exist, yet oil sits on the sidelines. Many ask whether crude will join the broader asset rally, and my answer is yes, but timing matters. Hedge funds have shifted from long to flat in recent weeks, the shortest positioning I’ve seen in years. That suggests near-term caution. A dip into the $50s is plausible before crude rebounds. But supply fundamentals are far tighter than many acknowledge. Global production growth was minimal last year, yet prices sat $10–15 higher. With national oil companies, independents, and equity-owned producers all constrained, supply is unlikely to loosen meaningfully.
Oil fundamentals will reassert themselves
Liquidity injections and rate cuts will create an environment where undervalued assets play catch-up. Oil fits that description perfectly. Before COVID, the relationship between the dollar and crude was straightforward; now, it’s muddier, entangled with bitcoin, equities, and bonds. In that complex web, oil looks undervalued relative to peers. Fundamentals are starting to force recognition. California’s refinery closures left gasoline prices at $6 per gallon versus $3 in Texas, underscoring tightening refining capacity. Even whispers of California importing fuel from Japan, an unlikely option, highlight how strained the system is. Meanwhile, the U.S. “real economy” is less robust than stock market gains suggest. Distillate stocks rose 5 million barrels last week, reflecting slowing freight and manufacturing. When this divergence resolves, oil’s undervaluation will become undeniable.