Eric Nuttall believes that oil prices have been artificially deflated, but a correction upwards is coming
The result of the US-Israeli war with Iran, if it truly is at its end, is Iranian control over the Strait of Hormuz. That fact, which is all but assured for now, creates a fundamental and structural shift in global oil supplies, with Iranian tolls on the crucial waterway forcing higher prices for gulf oil and significant capital outlays for infrastructure that bypasses the strait. The long-term reality is a structurally higher oil price, the current reality is a historically low global onshore oil inventory level, yet a barrel of crude oil now trades for just under $70 USD.
Eric Nuttall believes that the oil market, as it stands, “is effectively broken.” The Partner and Senior Portfolio Manager at Ninepoint Partners argues that at current inventory levels oil should cost something like $140 USD per barrel. Nuttall explains why he believes the market is so mispriced, noting a recent glut of Iranian oil as well as the power of communications by the US administration. While the market remains mispriced, he advises patience and a focus on Canadian energy names.
“You have [a US] administration that starts wars after market hours and ends them before market hours on a Monday and is incredibly worried about a rising oil price because of the inflationary pressures that has with an upcoming midterm election. Much of what they tell the public, I think, is vacuous and intended not to allow the overall stock market to fall and for the oil price to rise,” Nuttall says. “Going forward, we see a tighter oil market than prior. We see global inventories at their lowest levels in recorded history. [strategic petroleum reserves] are at their lowest levels since the 1980s. And yet the oil price is at or below where we were when the war started, which is frankly unbelievable.”
There is a historic breakdown between oil inventories and price, and is particularly odd when very high refining margins indicate strong underlying physical demand (ex-China boycott). How to explain? Incredibly effective Presidential jawboning has greatly reduced "capital at… pic.twitter.com/k9cKJ2Ws0B
— Eric Nuttall (@ericnuttall) June 30, 2026
Why oil is so cheap now
Nuttall’s explanation as to how the market got so mispriced begins with the roughly 140 million barrels of Iranian oil that were unsanctioned in the recent ceasefire agreement between the United States and Iran. He adds that there is now some slow traffic of tankers out of the Arabian Gulf, and that certain key energy producers are diversifying their infrastructure away from the Strait of Hormuz if possible. That Iranian glut, however, should be absorbed in relatively short order.
China has also played a role in keeping oil prices down. Chinese oil imports have fallen in the past few months by about five million barrels of oil per day in an effort to keep prices low. Nuttall believes that China has had to reduce its non-visible stockpiles of refined gasoline, diesel, and other refined product to compensate for those imports. It’s a situation that cannot be sustained in the long-term.
Finally, the role of the Trump Administration is crucial to the current oil price. Announcements from the White House have created significant volatility spikes in oil markets, both to the upside and the downside. That instability has created a more challenging investment environment for producers in places like Canada’s oil sands of the US Permian basin. The timeline for new project development is months away, meaning the 2027 price is likely to dictate the feasibility of a project. If a tweet can shift oil prices by five per cent in a day, then those sorts of investments look less attractive now.
When will oil markets right themselves?
Nuttall advises patience in the face of an oil market that he now thinks is too low. Over the next few months he believes the new inventories from Iran will be quickly absorbed. In that same time, the realities of the deal between the US and Iran will be realized and come to supersede statements by the US President in the minds of investors.
For advisors looking to play the space, Nuttall argues that there is still reason for positivity. The S&P TSX Composite Energy Index is up just under 25 per cent year to date and while it was down slightly in June, that growth is still significant. Now he believes that energy stocks offer an attractive entry price relative to current inventory and demand levels for oil.
Canada, Nuttall says, offers upside as US shale production reaches maturity and ceases to be the key marginal supplier. He sees greater foreign investment coming into the Canadian oilpatch while key Canadian names have spent the past decade paying down debt and building stronger balance sheets. All that is backed, too, by a more oil-friendly federal government.
“I think global investors are recognizing the opportunity. I think shale companies are recognizing the opportunity. We'll continue to see M&A,” Nuttall says. “You can buy companies, discounting $60 oil, trading at 10 per cent plus free cash flow yields at $70, which is the marginal cost of supply, sitting on decades and decades of stay-flat inventory, who are growing modestly and still prioritizing share buybacks through their remaining free cash flow.”
