Hi Ski,
A good read about the buy of a lifetime:
Oil“BP Says Oil Supply Growth Outside OPEC to Stall Next Year”
– Bloomberg News, August 8, 2025.
In the second quarter, the energy complex led the commodity markets lower. Oil prices— WTI and Brent alike—reacted to President Trump’s April 2nd tariff announcements with a sharp pullback, only to stage a spirited June rally that erased the losses, then give it all back again. The quarter ended with crude down 9%, and the mood in the oil pits distinctly sour.
The International Energy Agency did its part to deepen the gloom. Its June Oil 2025 report offered a forecast so downbeat it bordered on funereal: oil demand, it claimed, would barely grow over the next five years, while world liquids capacity—oil and natural gas liquids together—would swell by nearly 7.5 million barrels per day, tipping the market into a structural surplus of historic proportions.
Investors took the cue. Energy’s weighting in the S&P 500 slid back under 3%, a level last seen in the depths of the COVID panic. By another measure—the gold-to-oil ratio—oil now sits at one of the cheapest points in history. In April, an ounce of gold bought 58 barrels of crude, a reading matched only once before, in April 2020 at the height of lockdowns.
For anyone with a memory longer than a news cycle, the symmetry is striking. In the late 1990s and early 2000s, it was gold, not oil, that had been declared obsolete. European central banks raced to dump their reserves; gold bears pronounced the metal “demonetized.” Between 1999 and 2005, the gold-to-oil ratio repeatedly fell below 10, touching lows of 6.8 in August 1999 and 7.3 in September 2000 when gold fetched $270 and oil $37. Investors willing to believe those prices were wrong found themselves buying the trade of a generation: from the summer of 2000 to the fall of 2011, gold rose sevenfold, gold stocks fifteenfold.
The message of today’s ratio is just as clear—if you’re willing to hear it. Oil, in gold terms, is as cheap as it has ever been. The bearish narrative behind that cheapness—that electric vehicles will hollow out oil demand, that non-OPEC supply will grow relentlessly—has the same hollow ring as the “gold is dead” chorus of 2000.
We believe both pillars of the IEA’s outlook will fail. EV adoption, the linchpin of its demand pessimism, is already showing cracks. And its supply optimism leans heavily on a U.S. shale boom that has quietly plateaued and, by our analysis, is poised to decline—a reality the IEA has yet to factor in.
The last time the gold-to-oil ratio was this extreme, it marked the start of an eleven-year run in which the maligned asset – at that time gold -- trounced every other class. We think history is about to rhyme. Oil’s turn is next. For the supporting data—on both the demand resilience and the looming supply constraints—see the Oil section that follows.
Natural Gas“US Will Need to Ramp up LNG Output for Trade Deals.”
– Bloomberg Energy, August 5, 2025
Natural gas spent the second quarter in retreat, at home and abroad. In North America, Henry Hub prices slid 16%; Canadian gas collapsed by 60%. Overseas, the picture was mixed: in Asia, strong demand kept prices almost flat, down just 1.5%, while in Europe, a warm early spring sent prices tumbling more than 20%.
In the U.S., the story could be told in two acts, both weather-driven. Act one began last winter. As the withdrawal season opened, inventories sat roughly 340 billion cubic feet above their ten-year average—about 10% too high. Then January and February defied recent patterns, running 10% colder than normal. Demand spiked, furnaces roared, and in just two months the surplus vanished, replaced by a 70 bcf deficit. Prices responded with equal swiftness: by mid-March, Henry Hub had risen 25%.
Act two reversed the plot. March turned 8% warmer than normal, spring cooling demand lagged, and the summer cooling season was slow to start. May and June together delivered 8% fewer cooling degree days than average. By the end of June, inventories had swollen again—this time 350 bcf above normal—and prices gave back their gains, falling nearly 20% in the quarter.
Canada followed the same script, only more sharply. Its inventories swung just as violently, but the smaller market amplified every weather-driven move. The result was a second-quarter collapse far steeper than in the U.S.—a reminder that in natural gas, the line between shortage and glut is often just a few degrees on the thermometer.
For now, the market prefers to see the glass half empty. Inventories are back above seasonal norms, the speculative crowd has resumed its bearish stance, and the price boards in North America seem to confirm their pessimism. Yet the underlying fundamentals—stubborn, structural, and global—still point the other way.
Look overseas. In Asia, spot LNG trades at $11.50 per mmbtu. In Europe, it’s above $10. Compare that to sub-$3 prices in the U.S. and an almost absurd $0.60 in Canada. Measured by the heat content alone, American gas sells at roughly a 70% discount to world prices; Canadian gas at a 90% discount. A BTU, it turns out, is not worth the same everywhere— at least not yet.
Production trends are not what the headline numbers suggest. The EIA’s July 2025 ShortTerm Energy Outlook shows shale gas output essentially flat since December 2023. But in its 914 report, which measures total U.S. dry gas production, the agency reports an increase of 1.7 bcf per day over that same stretch. The gap shows up in the “balancing item” —the catch-all that reconciles the two series—and it raises a question we will explore in the Natural Gas section: is the EIA overstating total U.S. production?
Our own work points to supply losing steam. U.S. gas output, by our estimates, is decelerating rapidly. Against that, add 6 bcf per day of new LNG export capacity scheduled to come online within a year, and the balance tips sharply. Inventories that today feel comfortable could be drawn down faster than expected, and the yawning gap between North American and international prices could begin to close. If it does, it will not be in inches but in leaps. |
