$55 Oil Is the Biggest Opportunity Since COVID

In late 1998, oil prices didn’t just fall — they absolutely plummeted. 

Crude traded at nearly $10 per barrel, with some markets dipping even lower. At the time, a confluence of factors led to the price collapse. 

Not only were more barrels out of Iraq returning to the market, but there was also an extreme disconnect between sentiment and anticipated demand. The market wasn’t expecting to see such a sharp economic downturn in Asia, and OPEC had already agreed the year before to boost production quotas.

Of course, that’s not to mention the fact that non-OPEC output growth surprised a lot of people. 

Between the increasing supply and lackluster demand growth, it was a perfect storm for the price crash. 

Oil companies reacted the only way they could and stopped spending.

Drilling budgets were slashed, exploration projects were shelved, and long-cycle developments were quietly buried in boardrooms — all in the name of “capital discipline.” 

Wells that naturally declined were allowed to decline, and future supply was treated as a problem for another decade.

And for a while, nothing bad happened.

That’s the part everyone remembers. What they forget is what came next.

By the early 2000s, it was time to pay the piper as spare capacity thinned and marginal supply started drying up. 

The world learned that years of underinvestment won’t come with a warning, but rather a shock.  

Yet, oil prices didn’t surge because demand suddenly exploded. No, dear reader, prices rose because supply had been starved quietly, methodically, and for too long.

Today, oil at $55/bbl feels eerily familiar.

You see, cheap oil has always been a bit of a magician’s trick. With abundance comes the sense of stability, but behind the curtain is a growing tension that starts coiling.

After all, there’s a reason for the saying: The cure for cheap oil IS cheap oil. 

Whenever crude oil falls this low, I can’t help but get excited. Sure, the short-term feels painful, but our bullish sentiment grows every day that WTI lingers below $60 per barrel. 

The industry said it themselves earlier this year when executives warned that the U.S. shale business is broken. 

That’s not hyperbole, mind you. 

Even the EIA was recently forced to admit that U.S. oil production growth is now set to decline in 2026. 

But don’t take my word for it, go ahead and see for yourself:

People tend to forget how crucial U.S. tight oil is to non-OPEC growth. Within two years, our output has been impressively resilient, growing to a little over 13.8 million barrels per day in September. 

After such a strong run, the EIA is finally expecting to see output decline by around 100,000 barrels per day in 2026. Keep in mind that all those bearish forecasts expect just a few non-OPEC countries to carry supply growth over the next few years. 

Current projections now put Guyana and Brazil accounting for roughly half of global production increases in 2026.  

All this does is put even more control into the hands of OPEC. 

But there’s something a little more dangerous behind the curtain than handing the keys to global oil markets to the Saudis. 

The IEA sounded this alarm a few months ago, reminding everyone just how precarious things are in the global E&P sector. According to them, almost 90% of annual upstream investment since 2019 has been dedicated to offsetting production declines — not meeting demand growth!

To give you an idea of why, just remember that the share of output from conventional fields (think cheap, easy to extract) has fallen dramatically. 

First, remember that the average annual post-peak decline rate for a conventional oil well is about 5.6%, with the larger, supergiant fields experiencing a far lower rate than smaller fields (which is about half of global supply, and losing ground to smaller, unconventional fields). 

Over the last 25 years, conventional oil’s share of global supply has fallen from 97% to about 77%.

So, you can probably guess what would happen if investment were to start drying up from companies slashing their drilling budgets due to cheap oil prices. 

Well, you don’t have to guess, because we know that if capital investment were to stop, we’d lose about 5.5 million barrels per day each year between now and 2035. That's the equivalent of one Brazil each year!

Things get even scarier if the investment in U.S. tight oil fields were to stop. 

You know as well as I do that tight oil wells experience far steeper initial decline rates. 

This means that if capital spending were to dry up, our domestic oil output would collapse by 35% to 9 million barrels per day within a single calendar year! Then we’d lose another 1.35 million barrels per day every year after that. 

Now, do we think that U.S. drillers would suddenly stop all spending overnight? Of course not. 

But we can expect that almost 40% of them will decrease capital spending in 2026. At least, that’s according to the latest survey out of the Dallas Fed. With oil prices in the $50s/bbl range, a lot of wells out there are uneconomical. If oil prices continue falling, then the doomsday scenario of E&P activity ceasing suddenly becomes a real possibility. 

Back in 1998, the supply glut came along with surprisingly weaker demand out of Asia. 

We don’t have that luxury today. 

In fact, year-over-year demand surged in October by 2.4 million barrels per day thanks to a rebound in India’s consumption. Meanwhile, we’re still seeing inventories shrink here in the U.S., which comes at a time when they’re usually filling up. 

You can see where this one is headed, can’t you?

This is how I’m preparing for oil’s inevitable run higher in 2026.