Abstract: Market sentiment on crude oil has reached an extreme level of pessimism, but overlooked signals are heralding an epic reversal. This in-depth analysis explains why $60 is an “unsustainably” undervalued range and why we are confident that oil prices will return to $80 before the first quarter of 2026.
“Oil prices are about to break below $50!” This is the prevailing pessimistic narrative currently dominating the crude oil market.
However, when everyone is staring into the abyss, perhaps we should ask a different question: Is the market truly seeing things clearly?
In our view, the current price of WTI crude hovering around $60 is an extreme expression of market sentiment, not a true reflection of fundamentals.
This perspective completely disregards the rigid constraints on the supply side, the hidden recovery on the demand side, and a dramatic reversal in the macroeconomic environment.
We have identified four key pieces of evidence that collectively point to one conclusion: $60 is a golden buying opportunity for investors, and a return to $80 before the first quarter of 2026 is a high-probability event.
Supply’s “Triple Constraints” Have Firmly Sealed the Downside
The market is severely underestimating the fragility of the current supply side. Three powerful forces are converging to build a solid floor for oil prices.
First, OPEC+ has demonstrated far greater discipline than anticipated. In September 2025, Saudi Arabia successfully pushed the coalition to maintain its 1.66 million barrel per day (bpd) production cut.
More significantly, in the first week of November, OPEC+ announced a plan to pause production growth in the first quarter of 2026. This marks the first time the organization has suspended supply increases since it began restoring production in April of last year.
Second is the unexpected “assist” from Russia. Persistent Ukrainian attacks on Russian energy facilities have led to de facto supply disruptions. It is estimated that these attacks have resulted in an actual supply reduction of about 300,000 bpd.
This geopolitical conflict is tightening global supply in a way the market has not fully priced in. Furthermore, India’s decision to halt purchases of Russian crude under pressure from the United States further constrains Russian supply.
Finally, the engine of U.S. shale oil growth is stalling. The much-touted “new high for U.S. production” appears to be an illusion. In the core Permian Basin, single-well output has plummeted by 17% year-over-year.
The collapse in drilling efficiency, combined with announcements from giants like Pioneer Natural Resources to freeze capital expenditures until 2026, means that the once-agile army of shale producers has lost its ability to respond quickly to high oil prices. Projections from the EIA suggest U.S. crude output could see its first annual decline since 2021 next year.
The Demand Engine and Geopolitical Powder Keg the Market “Selectively Ignores”
While supply is contracting, positive drivers from the demand side and geopolitics are being either intentionally or unintentionally overlooked.
Investors must recognize the systemic underestimation of demand.
First, demand for jet fuel is experiencing a retaliatory rebound. The EIA confirmed that aviation fuel demand surged 4.2% year-over-year in June, with global flight numbers recovering to 121% of pre-pandemic levels. The recovery in the aviation sector is a primary driver, with overall jet fuel demand expected to reach pre-pandemic levels by 2025 or 2026.
Second is China’s strategic restocking demand. Market rumors suggest that China plans to add up to 50 million barrels to its strategic petroleum reserve at price levels below $60. This massive purchasing power will serve as the most solid “buy-side” support for oil prices. Reports indicate China is set to build its reserves through Q1 2026, which will help sustain import levels.
Meanwhile, the geopolitical risk premium has been completely ignored. The powder keg in the Middle East has never been extinguished.The market seems to have forgotten that in June, news of an Israeli strike on Iran caused WTI prices to soar 7.26% in a single day. In October, Iran’s launch of over a hundred drones towards Israel was a stark reminder that the risk of disruptions in the Strait of Hormuz is ever-present. With negotiations between Russia and Ukraine failing to make meaningful progress, a risk premium should remain embedded in the market. The current oil price, which includes virtually no geopolitical risk premium, is highly abnormal.
Technical and Funding “Resonance” Signals a Trap for Shorts
If fundamentals are the slow-moving variable, then signals from technicals and market positioning suggest a reversal is imminent.
The weekly chart’s stochastic oscillator issued a bullish signal in late October, indicating a long-term upward reversal is approaching. Simultaneously, the futures curve is in a deep contango, with the December 2026 contract trading at a premium of $7.30 over the spot price. This indicates that traders are aggressively buying near-month contracts, reflecting extreme optimism about short-term prices.
According to CFTC reports, net-long positions in WTI crude have fallen to an 18-year low. This implies that short positions are extremely crowded, equivalent in scale to 5.2 days of global consumption. Against such a fragile supply backdrop, any unexpected positive news could trigger a massive short squeeze, driving a violent price rally.
U.S. EIA commercial crude inventories have fallen to around 416 million barrels, a low for the past decade and below the five-year average. This means the market’s buffer has all but disappeared, making prices extremely elastic in the event of a supply disruption.
Macro Tailwinds and a “Historic Value” Trough
Finally, from a broader perspective, oil prices are at the starting line of a new bull market.
The U.S. Federal Reserve began its interest rate-cutting cycle in September 2025. A weaker dollar channel, coupled with monetary easing, will provide strong financial support for dollar-denominated crude oil. Although the pace of cuts may slow in December, the deteriorating U.S. job market will likely force the Fed to continue easing by early 2026 at the latest.
The recent liquidity tightness indicated by the SOFR also points to the necessity for the Fed to loosen monetary conditions.
More importantly, with CPI at 4.1% and the federal funds rate cut to 4.25%, the real interest rate in the U.S. has turned negative. This eliminates the opportunity cost of holding commodities, tilting the asset allocation scale towards real assets like crude oil.
Two additional signals warrant close attention.
First, the oil-to-gold ratio has fallen below 0.017 (meaning one ounce of gold buys approximately 59 barrels of oil), breaking below its 20-year channel trendline and showing that oil is extremely undervalued relative to gold.
Second, energy stocks are experiencing a “wave of breaking book value,” with Conoco Phillips’ price-to-book ratio reportedly falling to 0.93 and Chevron’s dividend yield reaching 6.1%. Such metrics are typically signs that an industry is at an absolute bottom.
Seizing a Historic Opportunity
When the market despairs over short-term noise, true opportunities emerge. At $60, crude oil represents a perfect storm of contracting supply, recovering demand, geopolitical risk, technical overselling, crowded short positions, macroeconomic tailwinds, and cheap valuation.
This is a golden entry point for all types of investors:
Short-term traders: Consider buying call options to capture high-beta returns.
Industrial capital: Engage in strategic hedge buying in the 60-65 range.
Long-term investors: Dollar-cost average into oil ETFs (like USO) and energy stock ETFs (like XLE) to embrace the sector’s value reversion.
Finally, an unconfirmed rumor may offer some insight: while the market shivers at the thought of $60 oil, the Saudi Crown Prince has allegedly ordered his sovereign wealth fund to prepare $80 billion to buy oil futures.
Whether true or not, it speaks to a simple truth: $60 crude oil is a gift to the farsighted and the best contrarian investment of 2026.