Should You Buy Oil Stocks Right Now? Here's What the Data Says

The energy sector is flashing green lights, but timing your entry remains critical. After a disappointing 2023 when oil stocks fell 1.33%, the question burning in investors’ minds is simple: is now a good time to buy oil stocks?

The short answer from major research firms: yes. But let’s dig into why the data is compelling and what could derail this rally.

The Market Setup: Why Oil Stocks Are Looking Attractive

Energy stocks have already rallied 6.39% in early 2024—though they’re still lagging the broader S&P 500’s 7.61% gain. This underperformance actually presents an opportunity. Here’s the kicker: oil prices have climbed nearly 23% to US$86.47 per barrel as of April, driven by geopolitical tensions and production constraints.

Compare this to 2023’s misery when the sector dropped 1.33% while the S&P 500 surged 26%. Even more dramatic was the contrast to 2022 and 2021, when energy stocks delivered jaw-dropping returns of 65.72% and 54.64% respectively.

The fundamental driver? A looming supply-demand gap that could reshape the entire market.

The Supercycle Setup: Why 2025 Could Be Different

J.P. Morgan’s research suggests the real money opportunity lies ahead. The bank is projecting:

• A 1.1 million barrel-per-day (bpd) deficit starting in 2025
• This gap potentially widening to 7.1 million bpd by 2030
• Oil prices potentially reaching US$150 per barrel in the near-to-medium term

This isn’t just speculation—it’s backed by production realities on the ground.

What’s Actually Driving Oil Prices in 2024

OPEC+ is controlling the narrative. In November 2023, OPEC+ announced an additional 2.2 million bpd production cut through March 2024. They doubled down in the first quarter with another 2.2 million bpd reduction for Q2. These aren’t small moves—they’re reshaping the entire supply picture. The International Energy Agency responded by cutting its 2024 oil supply estimate to 102.86 million bpd.

Geopolitical chaos is real. The Middle East remains a tinderbox. The Israel-Hamas conflict briefly pushed oil above US$90. More recently, Houthi attacks on Red Sea shipping are forcing tankers to take longer routes around Cape Good Hope, adding billions in costs and creating a permanent risk premium.

The Russia-Ukraine war continues adding volatility too. Ukrainian drone strikes on Russian refineries in March pushed Brent crude prices to a four-month high, with a single attack impacting 12% of Russia’s oil processing capacity.

Demand is holding steady. S&P Global forecasts oil demand growth of 1.7 million bpd in 2024 and 1.08 million bpd in 2025. China alone—responsible for over a quarter of new global oil demand—remains a crucial variable despite economic headwinds.

Interest rate cuts are coming. Fed Chair Jerome Powell signaled rate cuts on the horizon in 2024, likely starting in June. Lower rates typically support higher oil prices and boost energy stock valuations.

The Bull Case Is Getting Harder to Ignore

Major banks are turning bullish. J.P. Morgan stated: “We are turning bullish now as we envisage an emerging supply-demand gap beyond 2025, coupled with strengthening bottom-up sector fundamentals.”

U.S. Bank’s analysis is equally positive: “Many exploration and production companies have productive oil wells and should be able to generate solid profit margins.” The bonus? Dividend payouts mean these stocks offer income alongside capital appreciation.

The numbers back this up. Global oil consumption is projected to hit 102.4 million bpd in 2024, up from 101 million bpd in 2023. By 2030, J.P. Morgan expects demand to reach 106.9 million bpd as energy consumption in developing nations rises.

Why This Matters for Your Portfolio

The supply squeeze is real. Spare production capacity is shrinking. OPEC+ is managing supply like never before. And geopolitical risks keep creating price spikes that benefit prepared investors.

If you’re asking whether now is a good time to buy oil stocks, the answer depends on your thesis: Do you believe in the supply-demand gap? Do you think geopolitical risks remain elevated? Are you bullish on energy demand from developing nations?

If you answered yes to any of these, oil stocks deserve a look. Just remember—this sector remains volatile by nature, and thorough due diligence on individual companies is non-negotiable before deploying capital.