Why Energy Prices Are Poised to Stay High

Summary

Owning hard assets, particularly energy, is becoming the new frontier, even attracting AI companies to invest in natural gas producers and data centers. The world fundamentally runs on energy, and recent market dynamics reflect this. Despite geopolitical events causing daily price fluctuations, oil has remained range-bound, largely between $95 and $110 dollars. This stability, while beneficial for producers, has been at the expense of consumers. Global inventories have seen significant draws, with over a billion barrels lost, exacerbated by a depleted U.S. Strategic Petroleum Reserve, which has drained 200 million barrels since the conflict began. This situation, coupled with a lack of significant new supply investment over the past decade, suggests a structural bull market for oil is emerging. Investors are advised to look for companies with proven reserves and the ability to increase production, as it takes time and high oil prices to incentivize exploration and new projects. Consumers may already be seeing shortages in specific products globally, like LPG and engine oil, with gradual price increases expected rather than sudden shortages. While energy costs are rising, they remain a smaller percentage of personal expenditures than in past high-price eras, suggesting consumers can absorb some of these increases by making adjustments elsewhere in their budgets. Ultimately, a persistent higher oil price environment, rather than the spot price alone, is needed to incentivize producers and ensure future supply, leading to potentially higher prices for longer.