[The Oil Cycle Is Far From Over #6] Short-term crude oil prices are being controlled; in the long run, the gold-oil ratio will inevitably revert.

Mountain Range Summary: The Valuation Reconfiguration of Oil Majors When the long-term oil price center shifts upward, oil demand continues to grow, and oil companies’ cash flows and dividends become sustainable, the entire oil industry’s valuation logic will shift—from cyclical-stock valuation to value-stock valuation. For a long time, oil stocks have been viewed as classic cyclical stocks, with valuation logic centered on buying low PE and selling high PE. At cycle peaks—when oil prices soar and oil companies’ profits surge dramatically—the market deems such profitability unsustainable and thus assigns low PEs, typically only 8x–12x. Conversely, at cycle troughs—when oil prices collapse and company earnings plummet or even turn negative—the PE ratio balloons, sometimes turning negative. In 2022, when oil prices breached $100 per barrel, ExxonMobil’s PE stood at just 11x, while the S&P 500’s overall PE was 17.6x. The market’s logic was clear: such high oil prices couldn’t last; current earnings represented a cyclical peak, warranting no premium valuation. But what if the oil price center isn’t merely fluctuating cyclically—but is instead undergoing a systemic upward shift? What if oil companies’ earnings stabilize at high levels—and sustain high dividends—for years, even at oil prices above $100? This transition is already underway. By August 2026, ExxonMobil’s P/E had reached 19x, and Chevron’s stood at 17.8x—a scenario unimaginable five years ago, when an oil stock trading above 12x was considered expensive. Oil majors, having endured the negative-oil-price shock of 2020, have abandoned growth-at-all-costs strategies. U.S. shale producers no longer chase output expansion; instead, they deploy free cash flow toward debt repayment, dividends, and share buybacks. Giants like ExxonMobil and Chevron now deliver stable dividend yields of 4%–5% annually, with buyback programs running into tens of billions of dollars. For long-horizon capital, reliable cash returns hold greater appeal than tech stocks’ speculative narratives. After five years of disciplined cash generation, major oil companies have significantly deleveraged—net debt ratios across the sector have generally fallen below 20%, and interest coverage ratios are robust. These firms are no longer capital-hungry drilling machines; they’ve transformed into steady cash-generating “cash cows.” Meanwhile, ESG-driven narratives are receding. Systemic discrimination against fossil-fuel industries is fading, and capital is beginning to flow back into this sector—undervalued for a full decade. In summary: Mountain Range’s long-term outlook for crude oil can be distilled as follows—short-term price control, medium-term supply-demand gaps that prevent sustained suppression, and a long-term, inevitable upward shift in the oil price center. Over the next one to two years, oil prices will likely remain confined within a relatively narrow range, shaped by the U.S. election cycle, the Fed’s rate-cutting pace, and OPEC+’s market-share competition. The U.S. will continue deploying tools—including SPR releases, diplomatic pressure on OPEC, and futures-market regulation—to curb excessive price spikes. OPEC+ will maintain floor support via production cuts but avoid pushing prices so high as to damage demand. Macro-oriented financial capital will continue amplifying volatility within this range. During this phase, the extreme divergence in the gold-oil ratio may persist—or even widen further amid short-term recession fears. In the medium term (2028–2030), the consequences of underinvestment during the low-oil-price era since 2014 will surface: new fields will lag behind schedule, existing fields will decline faster, and U.S. shale output may begin falling.

Opportunities Wall Street Overlooked: Oil & Gas Energy

Yesterday, Rick Rule—the so-called “Godfather of Energy Investing”—made a striking statement in an interview. When asked by the host to rate his excitement about the oil and gas industry on a scale from 1 (worst) to 10 (best), the 73-year-old veteran didn’t hesitate: “10!” Rick Rule holds near-mythical status in resource investment circles. He famously positioned in uranium four-and-a-half years ahead of the rally—so early it nearly became a joke—but ultimately reaped enormous gains. Now he’s turned his attention to oil and gas—and his reasoning deserves careful scrutiny. The world is singing the death knell of fossil fuels—but data tells a different story. For over a decade, Western nations have aggressively pushed renewables, practically pinning oil companies to the “shame pillar.” Yet reality delivers a sharp rebuke. Even the International Energy Agency (IEA)—a body historically skeptical of fossil fuels—has quietly pushed back its forecast for peak oil demand from 2030 to 2060: a full 30-year delay! Humanity has poured $6–11 trillion into alternative energy—but the result? Fossil fuels’ share of the global energy mix fell only from 83% forty years ago to 81% today. Trillions spent—yet just a 2-percentage-point gain. Such inefficiency might leave environmental activists weeping in restrooms. Oil companies are profoundly undervalued. Here’s a critical technical detail: Wall Street analysts value oil and gas companies using models predicated on oil demand peaking and declining after 2030. But if demand actually persists until 2060, then the cash flows generated over those subsequent 30 years are simply excluded from valuations. As Rick Rule puts it: “It’s like buying a house and valuing it solely on the first eight years of rental income—while ignoring the next 30 years’ worth of rent.” Restoring that value would lift many oil companies’ intrinsic worth far above their current market capitalizations. ExxonMobil’s current share price reflects only about 70–75% of its true net asset value—equivalent to a 25–30% discount. A supply crisis is looming. Globally, the oil and gas industry is effectively self-castrating! Industry estimates suggest daily underinvestment in maintenance-level capital expenditures totals $1–2 billion. What does that mean? Oil companies are diverting funds originally earmarked for sustaining production capacity—toward shareholder dividends and share repurchases. Short-term, it feels great: shareholders receive real cash. But oil wells don’t sustain output without continuous investment—they naturally decline. Relying on legacy assets may work for another two or three years—but by 2028–2029, a cliff-like production drop appears virtually inevitable. The U.S. shale revolution once served as global supply’s savior—transforming America from the world’s largest oil importer into a net exporter. But that dynamic has shifted. At $60 oil, 85% of America’s highest-quality shale drilling locations have already been drilled. Even more alarming: U.S. active rig counts have recently plunged—catastrophically. The Low-Price Paradox: “The cure for low prices is low prices.” There’s an old adage in oil: “The cure for low prices is low prices.” It means: when oil prices fall too low, producers stop drilling, supply shrinks—and prices rebound. It’s a vicious cycle—but also an iron law. Recall the pandemic era? Oil prices crashed to zero—and even briefly turned negative—as nobody drove or flew. Global drilling activity ground to a near halt during that period.

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