The global oil market is currently caught in a “paradoxical” tug-of-war – leaving investors and analysts scrambling to decipher a “messy” supply-demand picture.
Paul Sankey, President and lead analyst at Sankey Research, has emerged with a contrarian take that challenges the conventional wisdom of high-tension price spikes.
While geopolitical drums beat louder in the Middle East and Eastern Europe, Sankey argues that the underlying commodity price is headed for a correction, even as the companies producing it become more attractive than ever.
In a recent interview with CNBC, he laid out a case that separates the short-term “noise” of military buildup from the long-term structural value of US oil equities.
The bear case: why oil prices could crash to $40
Despite the “gigantic” military buildup and heightened hostility in the Middle East, Sankey remains fundamentally bearish on crude oil prices.
He notes that the current price strength is being propped up by “short-term major issues” like cold weather and outages in Kazakhstan, rather than a sustainable deficit.
More importantly, he points to a massive “backlog” of barrels that cannot currently find a home.
Sankey argues that if diplomatic breakthroughs occur – specifically regarding the “shutdown of Russian exports” or a resolution in Iran – the market will be flooded.
He highlights a stark reality: “Every 100 million barrels that comes back into the market is $4 off the oil price on a short-term basis.”
Furthermore, Sankey believes the political climate under the Trump presidency favours lower energy costs.
“I doubt you’ll get a whole lot higher because I don’t think the Trump presidency wants that going into midterms,” he remarked, suggesting that the administration may lean toward easing sanctions if gasoline prices become a political liability.
For Sankey, the $40 target – while “run over” by current geopolitical events – remains a looming possibility if peace or new regimes allow sidelined oil to hit the water.
The bull case: why oil stocks are ‘too cheap to ignore’
While the commodity price may face downward pressure, Sankey is “bullish on the oil stocks” because of a profound shift in corporate behaviour and resource scarcity.
He points out that the US oil industry has undergone a radical transformation, moving from aggressive growth to strict capital discipline.
“They’ve become much better companies. They’ve consolidated, they’ve got great management,” Sankey explained.
He contrasts the valuation of the sector with the broader market, noting that while a retail giant like Walmart trades at 40 times earnings, a powerhouse like ExxonMobil trades at just 22, despite showing superior growth.
The long-term bull thesis is also driven by a “terminal value” story.
Sankey believes the market is beginning to realise that replacing US production, which is starting to “roll over” after a 15-year boom, will be much harder and more expensive than previously thought.
As OPEC itself begins to question its own long-term capacity, the value of proven, disciplined US producers rises.
By “bribing shareholders” through dividends and buybacks, these companies have made themselves essential holdings for investors looking for stability in a world where “reserves are becoming worth buying” again.
The Iran factor and the geopolitical uncertainty
The “huge overriding geopolitical issue” remains the wild card in Sankey’s outlook, particularly regarding Iran.
He describes the current situation as a “China supply story,” where foreign policy actions have created an artificial tightening of the market.
Sankey observes that people are “very nervous” about the sheer firepower moving into the region, but he notes that February’s demand levels mean “gasoline prices are not a major concern” yet for the administration.
“It’s very hard to know exactly how high we can go before we either back off on sanctions or we take other measures,” Sankey admitted, highlighting that the “Iran thing” will likely run for at least another ten days of intense speculation.
Ultimately, Sankey views this tension as a temporary veil over a market that would otherwise be in a glut.
While the “near-term noise” might prevent a clean read on supply and demand today, he remains firm that once the geopolitical dust settles, the “severely undervalued” nature of oil stocks will be the real story of 2026, regardless of where the price of a barrel of Brent ends up.
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