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Oil and Energy – how to play it when the cycle turns

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Question asked 11/10/2025

Oil and Energy – how to play it when the cycle turns

Hi guys, I love being a bit of a contrarian and taking positions in really unloved sectors or sold off stocks is something I enjoy (of course acknowledging fully that strategy only works if its a contrarian play rather than a falling knife!) For instance, gold stocks were cheap and a bit unloved from 2021 to 2022 and i took positions then, sitting on stocks not moving for a while, I also bought into James Hardie when it had a big sell down end of 2022 (recently just bought back in). The point is, im willing to take a position if i think its cyclical or short term and it doesnt bother me if I'm too early. Is energy and oil stocks (putting aside uraniam) particularly unloved at the moment? If I were to say that at some point there will be a turn around in energy and oil, maybe in 6 months, maybe in 12, but if i was inclined to think at some point the cycle will turn - what do you think is the best way to play a turn around in energy and oil? Woodside? FUEL ETF (though that doesn't seem to be particularly unloved). Also, if you could give some details about what do you think we would need to have a turnaround. Thanks so much for all your advice and work. Cheers, Josh

Answer

Hi Josh,

Great minds think alike – we were having a close look at the sector last week when laying the foundation for our Macro Monday report, it even took position of “Chart of the Week” as the professionals (smart money) generate increasingly bullish signals. Crude oil has experienced several output hikes from OPEC+ since it shocked energy markets in April, but the commodity is looking increasingly comfortable around US65. There are a few things currently at play today which may be creating a cyclical low in crude oil:

As mentioned, OPEC+ has been comfortable delivering output hikes, but they have restrained such moves next month on oversupply fears with oil around four-month lows.
Saudi remains mindful of market share while Russia is keen on supply restraint to help fund its war with Ukraine.
President Trump wants to “drill baby drill” to reduce prices, lower inflation so rates can be cut making the average American happy on a few fronts.
China’s economy is key to driving the demand side of the equation and its slowly picking up.

While prices have held up relatively strongly to the supply added so far, there are now signs that the market is starting to shift. Unsold cargoes from the Middle East are accumulating and the futures forward curve is showing signs of near-term weakness. There is another major factor at play today with the world moving towards clean energy:

If a more aggressive climate / decarbonisation scenario is realised (strong EV adoption, stringent fossil fuel regulation, rapid technological change), “peak” oil demand might occur earlier (late 2020s) and decline thereafter.

Hence, we believe “this time is different” and we want to buy the likes of Woodside when they’re very cheap. At the moment we think the likes of WDS and Santos (STO) are fairly priced, while delivering healthy fully franked yields which we prefer if a position may take time to turn/bottom i.e. We prefer STO and WDS over the FUEL ETF which holds ~70% of its poosition in the lower yielding North American producers, but we’re still not convinced the low is in place.

chart

Woodside Energy Group Ltd (WDS)

LAST UPDATED 09/10/2025 12:42

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