The unthinkable happened in the depths of the pandemic...
The price of oil was already down by roughly two-thirds. Then, it went negative.
Storage facilities were full. But drillers kept pulling oil out of the ground. With demand in freefall, having oil on hand was suddenly a liability. So for a brief moment in time, in theory, you could have gotten paid ($38 a barrel!) to take oil off someone's hands.
Within a day, though, oil was back to $10 a barrel. It soared to $40 a barrel within another two months...
The rally continued last year. And the war in Ukraine pushed prices to levels not seen since 2008.
Since that unthinkable day of negative prices, the boom has been nothing short of incredible. And there's good reason to think it's far from over.
That's not what most folks think, though. As I shared recently, the knee-jerk reaction is to believe this rally can't continue. But again, that's not the smart bet to make today.
I'm not going to predict $200 oil. But we could very well see oil prices stay above $100 a barrel for a while – and even go higher.
Oil companies have a bad habit of chasing prices. They go out and find as much oil as they can, and drill it as fast as they can, when prices are high.
That always leads to oversupply and an eventual bust. And it has led to a saying you might know as a consumer... The cure for high prices is high prices.
This isn't happening today, though. Producers aren't pumping enough oil out of the ground to keep up with today's demand.
We can see this through the U.S. oil rig count. It measures how many rigs are actively pulling oil out of the ground.
The lower the number of rigs, the less supply will come to market. The higher the rig count, the faster supply can catch up.
Today, we're at about 600 rigs. And that's still a long way off from recent highs. Check it out...
As you can see, hundreds of rigs shut down during the great oil bust of 2020...
Oil prices were way below the "breakeven" price at which oil companies can start to turn a profit. So instead of running at a loss, it made more sense to close up shop. That year, the active rig count fell below 200 for the first time in at least a decade.
We've improved from that extreme low today. But the number of active rigs remains below average... And it's still well below 2018 highs.
Meanwhile, demand for oil is through the roof. Estimates show it's near 100 million barrels per day. That's around 10% higher than where it was less than a decade ago. And industry analysts expect that number to keep climbing in the coming decade.
That means rig counts need to come up... a lot. They're still only at a third of their highs in late 2014 and early 2015. And before that, the total oil rig count was above 1,300 for years.
The rig count peaked at around 1,600... And the price of oil was also around $100 per barrel for most of that time.
In short, we likely won't get enough supply online to outpace demand anytime soon. And that means prices could stay where they are – or go even higher – for years yet.
That's the simple fundamental story for oil and gas prices. It means high prices are here to stay. So, unfortunately... we should all get used to $100 oil.
P.S. I don't like this any more than anyone else. High energy prices cost everyone money. But as investors, we can get on top of this situation... and actually use it to come out ahead.
You see, this setup could mean massive gains for a certain group of companies. And that opportunity is why I put together a presentation explaining exactly what's going on. To find out how you can profit, click here.
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On Wall Street, everyone thinks green energy is taking over. But in reality, the green-energy revolution guarantees we'll see a long-term boom for oil and gas. And as investors, we can profit from that gap in expectations... Read the full story here.