The Oil Shortage Is Bigger Than You Think

The average backwardation of Brent oil over the past 4 years is 7.8%, while it currently sits at 8.3%. Backwardation measures how tight the oil market is, and right now, the shortages are above the 4-year average.

And these weren’t just any four years, they marked the end of lockdowns, which unleashed a wave of pent-up demand and resulted in some of the highest economic growth figures ever recorded. Add to that the intense conflict in the Middle East and Russia’s invasion of Ukraine, and the fact that shortages are now even larger than this eventful period says a lot.

Over the last four years, oil stocks have outperformed the index. With the current shortages exceeding the average, I’m betting that oil stocks will continue to outperform for a while.

Investing is about the numbers, you can ignore the story. But if you want a reason, here’s one: the last-minute sanctions by outgoing President Biden are a big deal.