WTI crude closed last week at around $87 a barrel. Is that expensive or cheap?
It sounds like a simple question. It isn’t. Oil is one of the few assets whose price is determined simultaneously by economics, politics and geology. Geopolitics can make any forecast obsolete overnight, so a better approach is not to predict the next price move, but to understand what makes a given price sustainable.
Start with supply and demand. The world consumes around 100 million barrels a day and neither production nor consumption can change quickly. Even a small imbalance therefore matters: when supply exceeds demand, inventories build and prices tend to fall; when demand exceeds supply, inventories decline and prices can rise sharply.
The long-term value of oil may be anchored by the cost of producing the next barrel, while the short-term price is set by the price required to secure the marginal barrel needed to balance the market.
Price itself then becomes part of the solution. At around $40-50 a barrel, many producers can keep existing wells running, but new investment becomes less attractive. In the Dallas Fed Energy Survey for Q1 2026, responding exploration and production firms said they needed an average WTI price of about $66 to profitably drill a new well – roughly $59 for larger firms and $68 for smaller ones. At $100, the incentives reverse: producers want to invest and consumers have more reason to use less.
That creates a simple cycle: low prices eventually sow the seeds of higher prices, and high prices eventually sow the seeds of lower ones.
Then geopolitics gets in the way. Wars, sanctions or threats to major shipping routes can put millions of barrels at risk, so oil can rise before any physical supply is actually lost. WTI rose nearly 6% last week, its second consecutive weekly gain, as Middle East tensions intensified. Yet the same Dallas Fed survey put respondents’ average year-end WTI expectation near $74, while several executives described the geopolitical premium as temporary. Risk premia can appear quickly – and disappear just as quickly.
History offers another useful reference point. In 1976, oil traded at roughly $12 a barrel depending on the benchmark; adjusted for consumer-price inflation, that is around $70 today. The precise comparison matters less than the pattern. Across wars, embargoes, recessions, OPEC, the shale revolution and enormous changes in demand, the real price of oil has not simply compounded higher. It has repeatedly moved between abundance and scarcity and then gravitated back toward an economic centre.
So, the useful framework is not a fixed fair-value target, but a set of broad ranges. At $40-50, oil looks cheap enough to discourage future production. Around $60-80, producers and consumers can broadly coexist. Above $100, something unusual generally needs to be happening – scarcity, exceptional demand or geopolitical fear. Technology, OPEC policy, capital discipline and the marginal resource will move those ranges over time, but the underlying logic remains.
For investors, that is more useful than guessing whether the next move is $10 higher or lower. Ask what price is sustainable, understand what the market is currently pricing, and decide whether reality is likely to be better or worse. At Miravest Global Balanced Fund, we apply the same thinking across markets: we cannot predict the next geopolitical event, but we can assess when prices appear to have moved too far from their underlying economics – and whether that creates an attractive investment opportunity.
This update is provided for information purposes only and does not constitute investment advice, an offer, or a personal recommendation. Past performance is not a guide to future results. Prospective investors should review the fund’s full documentation and seek independent advice appropriate to their circumstances before investing.