I've been building an energy position for several months, and the latest developments around the Strait of Hormuz haven't changed my view. If anything, they've reinforced it.
One thing I've learned over the years is that markets rarely move on headlines alone. They move when probabilities change. Right now, the probability of prolonged geopolitical tension appears much higher than it did a few months ago.
Global oil demand remains close to 104 million barrels per day according to recent industry estimates. Even though demand growth has slowed compared to previous years, consumption remains near record levels. At the same time, years of underinvestment outside a handful of major producers have limited how quickly new supply can reach the market.
That's why every headline involving the Middle East immediately gets traders' attention.
Even if the Strait of Hormuz never fully closes, shipping costs, insurance premiums and risk premiums can all increase. Those costs eventually work their way through the supply chain.
I also think investors sometimes underestimate how profitable higher volatility can be for certain companies. Large integrated oil producers generally generate stronger cash flow when crude prices remain elevated. Refiners often benefit when product margins expand. Tanker companies may earn higher charter rates during periods of market disruption.
Of course, there are risks to this thesis. A diplomatic breakthrough could quickly remove much of the geopolitical premium from oil prices. Global economic growth could also weaken enough to reduce fuel demand.
That's why I wouldn't treat this as an all-or-nothing trade.
Personally I'm focusing on balance sheet quality, free cash flow generation and companies that can remain profitable whether oil is trading at $70 or $100. Those businesses tend to outperform over longer periods because they don't rely on perfect market conditions.
I know energy isn't the most exciting sector compared to AI or small-cap momentum plays, but sometimes the best investments are the ones backed by real cash flow, strong dividends and global demand that isn't going away anytime soon.
Interested to hear opposing views because that's usually where the best discussions happen.
