"I'm Afraid of Looking Like an Idiot": Why Is an Investment Manager Buying Energy Stocks When Oil Prices Are Falling?

The current drop in oil prices—which have fallen by about 17% over the past five trading sessions amid discussions of a deal between the U.S. and Iran— presents an ideal opportunity to enter positions in energy assets, according to Kevin Muir, a former institutional trader and now senior investment advisor and portfolio manager at BMO Wealth. His opinion is cited by MarketWatch.

In his latest post for Substack, the expert admitted that, at first glance, his recommendation looks like a “crazy prediction.” “Over the years, I’ve come to realize that when I’m afraid to write a post—when I’m afraid of looking like an idiot—those are often the best trades. Well, I can tell you, I’m afraid to admit it: I’m buying into the energy sector,” he wrote.

Despite the recent drop in oil prices, Muir currently considers buying Brent futures or shares of the United States Brent Oil Fund (BNO) to be sound investments. However, he himself is more inclined toward energy sector stocks (XLE), which he considers undervalued. According to him, in the first months of the war, the S&P 500 energy subindex traded at a P/E (price-to-earnings) ratio of 20, but that figure has now fallen to 12. He forecasts that energy companies’ earnings could “easily” grow in the coming months, and the P/E ratio could rise to 16.

Muir attributes his position, among other things, to the fact that the U.S. and other governments have tapped into their strategic reserves to mitigate the effects of the Middle East crisis. Against this backdrop, U.S. reserves are hovering at their lowest level in more than 40 years. That is precisely why, according to Muir, governments will not only replenish these reserves but will also seek to purchase even more oil to protect themselves from another crisis. This, in turn, will contribute to a rise in oil prices and the stock prices of energy companies.

Back in January, Kevin Muir had already made an accurate prediction, urging investors to buy oil—a call that coincided with President Donald Trump’s actions regarding Venezuela. At the time, the analyst stated that the price of WTI at $57 per barrel was close to its bottom, as prolonged underfunding of the industry would inevitably lead to a supply shortage. Since that forecast, the price of crude has risen by 31%, notes MarketWatch.

And although Muir noted that he was not among those who were most vocal in predicting that oil prices would inevitably rise to $200 per barrel, he did not sell his energy-related assets either. In his view, the idea that commodity prices are bound to fall after the signing of a memorandum of understanding and the resolution of the Middle East conflict is too obvious and simplistic. “If my theory that ‘the more complicated the deal, the better it is’ turns out to be correct, then this will be a spectacular trade,” Muir remarked.

Oil prices fell sharply earlier this week after news broke of the impending signing of a memorandum of understanding between the U.S. and Iran. Over the past three days, Brent and WTI futures have lost about 8%. During trading on June 17, Brent was trading around $79 per barrel, while WTI was trading at 76%.

The expected signing of a preliminary peace agreement between the U.S. and Iran has already prompted investment banks Goldman Sachs and Morgan Stanley to sharply lower their oil price forecasts for this year and next. Goldman Sachs now expects the price of Brent crude to average $80 per barrel in the fourth quarter, down from its previous forecast of $90. According to Morgan Stanley’s estimates, the price of Dated Brent—which serves as the benchmark for the physical market—will average $90 per barrel in the third quarter (down from the previous estimate of $100) and will fall to $80 in the final three months of the year. By comparison, in April, spot oil prices reached $147 per barrel.

Kevin Muir is an experienced Canadian financial professional, portfolio manager, and senior investment advisor at BMO Wealth, which he joined in 2007 after working in mergers and acquisitions (M&A) and managing large private equity funds. He currently manages investment assets for 140 clients totaling more than $600 million.

He is also known in the investment community as an independent analyst and the author of the popular macroeconomic Substack blog, Macro Tourist.

This article was AI-translated and verified by a human editor