Oil Is Surging, Right After a Rare Buy Signal
The setup for select oil equities is asymmetric and compelling
Oil is moving higher this evening after Iran attacked three commercial vessels in the Strait of Hormuz, prompting U.S. retaliatory strikes against Iranian targets and the re-imposition of sanctions on Iranian oil. Oil futures rose on the escalation, as the market quickly reprices the risk that the recent U.S.–Iran MOU is already breaking down.
This price jump is early validation of the rare oil market buy signal I highlighted on Monday:
This signal looks uncomfortable in real time, which is exactly the point. It has historically appeared when the physical market looks weak, sentiment is washed out, and investors don’t want to buy oil or oil stocks.
But the few times this signal has flashed in the last few decades, oil prices and related equities subsequently moved sharply higher. Now oil is already moving higher, just days after the signal appeared.
Could this jump mark the beginning of oil heading back above $100?
With inventories near historic lows,
and oil positioning already max short,
the setup is certainly there.
I was quoted in Reuters today addressing the Iranian attacks and US sanctions re-imposition, before US strikes on Iran tonight. “The U.S. reimposing sanctions on Iran is a major escalation,” said Josh Young, chief investment officer at Bison Interests. “Iran may respond with force, further limiting exports through the Strait of Hormuz, and risking $100+ oil prices again in the near term.””
Cautionary Note:
On the other hand, it is difficult to see how Iran will “win” by re-closing the Strait: by doing so, Iran turns much of the world against itself, invites a severe military response, and risks losing its ability to sell oil if the U.S. reimposes and enforces sanctions. For these reasons, Iran may eventually try to get back into line and re-open flows.
However, the MOU that was in place was extremely favorable to Iran, which makes it notable that Iran egregiously violated it anyway. I think this reduces the odds of a sustainable peaceful reconciliation and raises the risk that this escalation is far from over.
Nevertheless, the extreme volatility and uncertainty is why I prefer investing in the oil stocks I’ve shared about on Bison Insights, which I think offer a compelling combination of upside exposure to higher oil prices and downside protection if oil prices surprise lower.
For example, below is the NAV per share sensitivity for one of my largest oil positions, which I recently highlighted alongside four others in my top oil stock ideas article:
These are the ideas are part of a broader set that make up the Bison Insights composite index, which has performed substantially better than the broader energy market since publication:
Considering the asymmetric setup, I launched a limited-time 40% off Bison Insights sale that expires this Friday.
This discount is not just for the first month or two. Your reduced rate will be locked in for as long as you remain a subscriber.
If you want access to my stock ideas, expert interviews, and oil and gas macro analysis, now is a great time to sign up. Thank you again for reading and supporting Bison Insights!
Disclaimer: This is for informational and educational purposes only. This is not an offer, solicitation, or investment recommendation. Please consult an advisor and do your own diligence. Investments carry risk of loss. Past performance may not repeat itself.