Oil Hoarding: The #1 Risk to the Market from here

We’ve made the case in many editions of Mining Memo that higher energy prices are here to stay. And history is our blueprint.

Rewind to the 1970s. Oil prices climbed for the better part of a decade, rising roughly twelvefold from where they started.

But what’s often missed is that demand INCREASED despite prices moving HIGHER.  

Commentators tend to argue that as oil prices rise, demand drops, what they’d describe as demand destruction. But that overlooks what occurred during the 1970s.

In 1979, the worst year of the oil price spike, demand actually increased. That’s because countries scrambled to stockpile every barrel they could secure.

Back then, hoarding disrupted the delicate supply-and-demand balance in the market.

The combination of rising prices alongside rising demand isn’t supposed to happen according to conventional economics. But in the 1970s it did.

And that’s the #1 risk we face today.

Finding parts of the market that can thrive

While broad indices like the All Ordinaries and the S&P 500 spent much of the 1970s going nowhere in real terms, energy assets did the opposite.

Gold rose from about $35 in 1971 to over $800 by 1980, more than 2,000%.

Oil rose from $1.80 per barrel in 1971 to $35 per barrel by 1980, a 1,800% increase.

Based on US wellhead price data, natural gas rose from about $0.22 per thousand cubic feet in 1971 to about $1.85 per thousand cubic feet in 1980, a roughly 741% increase.

Across the board, uranium, nickel, copper, and aluminium all rode the decade of rising commodity prices.

Right now, there’s plenty of room for growth in this sector…

At its 1980 peak, the S&P 500 had a 30% weighting to oil and gas stocks.

Today it sits at around 3.2%, amongst the lowest weightings in the index’s history.

In line with the slide in oil and gas producer valuations, global upstream investment has fallen by roughly 35% in real terms since 2015.

And that’s all attributed to global capital chasing growth stocks and renewable energy promises rather than new oil and gas supply.

As I highlighted previously, the majority of capital investment in the O&G market simply offsets the natural decline of ageing fields. It’s not directed towards new supply.

Which brings us to perhaps the best investment angle of all…

Service Stocks

The 1970s showed that the standout performer wasn’t the commodities themselves.

It was the companies servicing the industry, the picks-and-shovels players, as demand for drilling, maintenance and infrastructure services surged alongside the broader resource boom.

If history holds, the biggest winners from here may not be the oil and gas producers themselves, but the businesses that service them.

Rising production, increased drilling activity, and export infrastructure builds all require equipment maintenance, engineering, and logistics support. That was true in the 1970s. And it could be again, soon.

Here in Australia, that idea runs through mining services companies now expanding into energy, taking their existing mining-industry relationships and applying them to gas pipelines, processing plants, and export terminals.

Where does that leave us from here?

You might still be sceptical, but if you’ve been reading Mining Memo for a while, I think you have to give us some credit for picking out important trends early.

Like, making the call throughout 2025, that traditional energy stocks should be your key area of focus as geopolitics inevitably collide with the world’s most important commodity, oil and gas.

And that extremely low valuations across the O&G field wouldn’t last.

Chronic underinvestment, a genuine supply shock, and a market that has written off the oil and gas sector for almost two decades.

It should be clear now that this is not going to be resolved quickly or easily.

For readers who want the full breakdown, including which companies could be positioned to ride this whirlwind volatility, we have it all here. 

Until next time.