There is a reason why oil is called black gold.

Like bullion, they are hard to find in large quantities, hard to get out of the ground, and relative to all the people who want or need them, there never seems to be enough to go around.

However, there is one key difference: ingots can be sliced, diced, melted, cooled, and reused again.

Oil? We just keep burning more stuff every day.

All of which means that, given the terrifying headlines about a new “oil bear market,” this is a second chance to buy oil stocks or the commodity itself… and be well rewarded.

Oil Zigs and Zags

In case we’ve all forgotten, oil basically doubled in price, climbing to $51 a barrel, in just four months earlier this year. Do we think there would be more progress without a setback (or three)?

The oil market is justifiably famous for its volatility, especially when it breaks out of its periodic bear market cycles.

It happened in 1986 when oil jumped 70% in a month. A vicious retracement rallied almost all of the gain, only for the commodity price to double over the next year.

It happened in 1994.

And then again in 1999, 2001, 2003, 2006… well, you get the point. Twenty percent retracements (and worse) go with the territory when the scent of a bear market still lingers in the air.

The key to remember is that the fundamentals for higher prices are still quite good. Right now, you will be reading a lot about concerns about oversupply in the oil market. Yeah, sure, for a handful of months. Meanwhile…

We just keep burning more stuff every day.

Hitting the open (clogged) roads

A few weeks ago, the Energy Information Administration said that Americans are on track to break a nine-year record for gasoline consumption. Our cars consume, on average, more than 9 million barrels per day.

The same agency expects US crude oil production to continue to decline over the next year, stating that: “The expectation of reduced cash flows has led many companies to reduce investment programs, deferring major new projects until for a sustained price recovery to take place.

The rest of the world hasn’t lost its taste for hydrocarbons either, despite all the ongoing investments in wind and solar power.

China is a good case in point. We all know the story of the slowdown in the economy there. However, Platts China Oil noted in June that its measurements of “apparent oil demand” (due to the opaque nature of China’s official energy data) fell just 1.3% in the first four months of this year.

Buried within your data is an interesting trend reversal. Industrial oil demand is fairly flat. On the other hand, the use of gasoline is breaking all kinds of records. It is already up 8% in the first four months of the year.

As you can see, the industrial side of their economy is sluggish, but that doesn’t stop millions of Chinese from buying cars and taking to the roads and highways. Passenger car sales increased more than 6% (with a particular buyer preference for gas-guzzling SUVs, which saw a 46% increase in sales).

India is a similar story. Car sales were up 8% and gasoline demand was up 14% year-over-year. India’s decades-long focus on service-based industries is expanding to include more manufacturing as well. Oil experts believe the nation of 1.2 billion people now burns 4.2 million barrels of oil every day, making it the world’s third-biggest consumer of crude behind the United States and China.

No help from the wide open spigot of oil

On the supply side, what about all the talk about “market share”, “excesses”, Saudi Arabia and the rest of OPEC?

As others point out, the power of the cartel is waning. The group’s ability to pump additional amounts of oil, what experts call “excess capacity,” is at its lowest level since 2008.

Saudi Arabia, historically the “swing producer” of oil, isn’t much help either.

One big factor: hotter summers. It means more and more electrical demand for air conditioning. And unlike the US, where natural gas powers the majority of power generation capacity, Saudi Arabia burns oil to keep its citizens’ air conditioning units reliably set to “maximum cooling” mode. “.

The result?

In 2015, the Kingdom used a quarter of its reserves to meet its own internal needs. For a record eight-month drop, between October last year and May, the country’s overall crude inventories fell 12% to just under 300 million barrels.

We have been warning for some time about the growing opportunities available in the oil industry.

So don’t let the recent headlines over the past month about “oil prices crashing” stop you from taking advantage of this second chance at black gold.