We opened the year with an escalation of U.S./Iran tensions.   With that, oil prices have become a front burner focus for markets.

Yesterday, we revisited the impact the Iraq war had on oil prices.  Ultimately, the Iraq invasion led to a near double in the price of oil over 18-months.

Will Iran be the catalyst for run at $100 oil? Maybe.

Remember, oil was trading north of $100 in the summer of 2014.  By November, prices were sub-$80, and the table was set for OPEC to cut production and stabilize oil prices.  They refused, triggering a crash in oil prices that ultimately sent oil down to as low as $26.  OPEC’s strategy: Kill off the emerging threat of the U.S. shale industry by forcing prices well below where they could produce profitably. To an extent it worked. More than 100 small oil-related companies in the U.S. filed for bankruptcy from 2014-2016.

While they nearly succeeded in killing the shale industry, these oil producing countries nearly killed their own economies in the process.  So, in effort to drive oil prices higher, to salvage oil revenues, they had to flip the switch in late 2016, cutting production for the first time since 2008.

And they did so, in a market that was already undersupplied.  And in a world where demand has been underestimated, and growing.  With that, oil bounced aggressively — from $26 in early 2016, to as high as $77 by late 2018.

Over the past few years we’ve discussed the work Leigh Goehring, one of the best research-driven commodities investors in the world.  He has been wildly bullish on oil and commodities.  And he has been looking for a return to $100 oil.

Here is an analog Leigh has been watching on oil:  he says “the last great bull market in oil started in 1999; by 2004, everyone was still bearish. You had four years of a bull market before anyone really began to accept it. Once they did, commodity prices really took off and the investments took off … I think the psychology is going to change. It’s going to realize that US oil shale is not enough to balance the market.”

The parallels continue on this early 2000s analog, including the role of Middle East conflict.  Meanwhile, as you can see, while oil prices may still prove well undervalued (and poised for a revaluation), oil and gas stocks are (and have been) dirt cheap.