Foreword and core investment logic

This note explores current investment opportunities in the oil market. The core logic rests on what I call Market Distortion Theory: geopolitical fragmentation is fundamentally altering global oil pricing mechanisms, and the distortion is now large enough to break the feedback loop OPEC depends on.

A dual-track market has formed. The Russia–Ukraine conflict and Middle East tensions have spawned a shadow trading system parallel to traditional markets. Russia and Iran are delivering substantial crude volumes to Asia at discounted prices through shadow fleets and non-dollar settlement. This dual-track system suppresses apparent prices — but more importantly, it undermines market information transparency.

OPEC's pricing power is structurally weaker. Its monopoly historically rested on two pillars: production capacity control and information advantage. With significant volumes now transacting in opaque parallel markets, OPEC has lost the ability to accurately gauge true supply and demand. Unable to track competitors' actual production and sales, its market adjustment mechanisms are failing — and the asymmetry is forcing it from price setter to market-share defender.

Demand resilience is systematically underestimated

Markets are overly focused on EV penetration rates while overlooking three facts. First, oil demand in developing countries continues to accelerate. Second, even in China — where EVs are expanding rapidly — oil demand is still hitting new highs. Third, subsidy rollbacks under global fiscal pressure could significantly slow electrification.¹

Fossil fuels still account for over 60% of global energy supply, a structure unlikely to change in the near term. Faster growth in electricity demand than in clean-energy deployment causes absolute fossil consumption to rise rather than fall — which helps explain why the transition is running slower than policy expectations. Continued cost declines could still accelerate it; the trend needs watching, not assuming.

Drain the pond to catch fish

Current high production is essentially depleting existing capacity.

On the surface, all three major supply sources — OPEC, North America, and Russia–Iran — are increasing production to compete for share. Deeper in the data there is an overlooked contradiction: rig counts are continuously declining, well completions are hitting new lows, and capital expenditure has been slashed. US rigs fell from 688 in 2023 to 538 in August 2025, with Mexico and Canada on similar paths. OPEC's own rig count has moved sideways in a 412–444 band despite announced increases.

Completed wells peaked in 2019 and have declined since across the major OPEC members. Even if investment resumed immediately, oil-field development cycles mean new capacity takes years to contribute, while natural decline continues eroding total capacity in the meantime. This production model foreshadows a potential supply gap in the next three to five years.

Investment implications

In the short term, oversupply from three-way competition will suppress oil prices. But that is precisely what creates positioning opportunities for forward-looking investors: when markets recognise the supply gap, new projects will require three to ten years from initiation to production, potentially creating upside beyond current expectations.

From a medium-to-long-term allocation perspective, the characteristics that matter in an oil company are a healthy financial condition able to weather downcycles, rapid production-expansion capability, a track record of returning value through stable dividends, and a complete industrial chain with lower sensitivity to price volatility.²

Investors seeking higher returns could look at oil services and exploration companies during supply-side recovery, as these carry high sensitivity to price volatility. Timing is difficult and the risks are higher, so this note makes no specific recommendations for such high-beta targets.

Key risk considerations

The current global economy faces geopolitical conflict, fiscal pressure, slowing growth and inflation all at once, with high uncertainty; severe downside would push actual trends away from this analysis. Oil is among the most volatile commodities in the world, with complex pricing mechanisms. The data here comes from public institutions — OPEC, IEA, FRED — which carry perspective biases, lag, and in places gaps left by the conflict itself.

This note represents my own views and analytical framework. It is for academic exchange and idea reference only and does not constitute investment advice. Investors should combine their own research and judgment, and bear their own risk.