Alpha Buying: Navigating the Complex Future of Oil Under Trump's Policy Push

Having a falling stock market isn't enough.

Apparently, several commodity sectors, most notably crude oil, have decided to get in on the action as well. Oil prices have been dropping sharply over the past week, caught in the whirlwind of turmoil, drama, and just a whole mess of market-rocking stories.

Crude oil is trading on the expectation of a weakening U.S. economy, and that is absolutely a possibility. The markets are growing increasingly anxious about stagflation creeping into the United States.

Will it happen? Maybe, maybe not—but it's on the table.

 Inflationary pressures, particularly from tariffs, are adding fuel to the fire.

 Just ask the big three car manufacturers: if those Canadian tariffs had stayed in place, car prices in the U.S. would have skyrocketed by 25%, punishing not the folks we imposed the tariff on, but American consumers.

Tariffs tend to restrict global trade, and when you factor in the potential for mass layoffs in government sectors, you start getting a picture of an economy slowing down, even as inflation remains sticky.

That's the textbook definition of stagflation, and it's not exactly great for oil and gas demand.

The United States has been one of the primary drivers of oil and gas demand, despite some, shall we say, moderately to completely misguided policies of the previous administration when it came to energy.

Meanwhile, President Trump keeps touting his “Drill, baby, drill” strategy, promising a surge in production.

 But here's the thing: he forgot to mention how exactly he's going to convince oil companies to abandon fiscal responsibility and ramp up production, thereby lowering commodity prices and hurting their own bottom line.

 It doesn't quite add up.

All this uncertainty? It's hitting oil and gas stocks hard.

 Take the VanEck Oil Services ETF, down 17% over the past year and already off another 8% this year.

 Clearly, the market thinks nobody's ever going to work in the oil and gas patch again.

Here is  where things get interesting. The oil services industry is ripe for consolidation, and we're going to see more of it in the months ahead.

Expect increased activist activity as well. This is something  we will keep a close eye on.

The XLE is basically flat on the year so far, but we're well off December highs of nearly $98, now trading around $86.

So, oil and gas has been in a bit of a mini bear market. It's not a full-blown oil panic just yet, but we can't rule that out either.

Of course, OPEC+ decided they wanted a piece of the action.

 Last week, they announced an increase in oil production, the first in several years.

For a while, they had been cutting production to keep prices elevated in the aftermath of COVID and the global slowdown.

But with economic weakness persisting in Europe and China, they decided it was time to open the taps.

Speaking of China, they wrapped up their latest high-profile economic meeting, the so-called Two Sessions, and they're targeting 5% growth this year.

 Sounds great, right?

But with their ongoing real estate crisis and internal economic difficulties, hitting that number is no sure bet. The potential for continued weak Chinese oil demand is adding more uncertainty to the global picture.

What happens if a peace agreement is reached in Ukraine? Russian oil and gas restrictions could be lifted, which would bring even more supply onto the market.

Most of that would likely flow to China, further reducing the need for imports from Western and Middle Eastern producers.

That, my friends, is yet another factor weighing on oil prices.

But despite all this bearishness, don't forget that crude oil demand is still on the rise.

We may be in the doldrums now, but long-term, supply and demand dynamics are still positive.

That said, the U.S. is not in “drill, baby, drill” mode. Oil production growth slowed significantly last year, marking one of the smallest increases in years.

While natural gas production remains strong, there's been no serious bearish talk about gas prices.

Now, here's where it gets really messy: refining.

The U.S. refining industry is built to process heavy crude. We spent decades importing it, so we set up refineries along the Gulf Coast and in California to handle the heavy, sulfur-rich stuff.

Guess what?

We're now one  of the world's top producers of light, sweet crude, and our refining infrastructure just isn't designed for it.

Converting a refinery to handle light crude costs hundreds of millions, potentially billions—of dollars, and getting the permits to build a new one?

 Forget it. The only thing harder than getting a new refinery approved is getting a nuclear power plant built.

Between federal, state, and local governments, plus the inevitable backlash from environmental and citizen groups, new refining capacity is a distant dream.

Most of our imported crude comes from three places: Mexico, Venezuela, and Canada. And yet, we're either not trading with them or actively engaged in trade disputes. Venezuela's output just took a hit as the Trump administration gave Chevron a 30-day notice to shut down all Venezuelan crude operations. That's 50,000 barrels a day—gone. And with Venezuela still under heavy restrictions, that oil isn't coming back anytime soon.

So, what does this all mean for crude prices? More near-term weakness, probably.

Longer-term, the fundamentals point to higher prices.

We've still got tension in the Middle East, and Ukraine-Russia negotiations could fall apart in an instant. In fact, just last week, Russia ramped up military activity, attacking Ukrainian energy infrastructure with drones and airstrikes.

We're not out of the woods.

Historically, insider purchases in oil and gas firms have been highly predictive of subsequent rebounds. During previous downturns such as the 2008–2009 financial crisis, the 2014–2016 oil crash, and the COVID-19 collapse in early 2020, insiders stepped up their buying, signaling confidence in the long-term fundamentals despite widespread market pessimism.

Empirical evidence backs this up. During the 2014–2016 oil crash, when crude prices plunged from ~$100 to below $30 per barrel, energy executives aggressively bought shares.

Companies like Occidental Petroleum OXY, Diamondback Energy FANG, and Pioneer Natural Resources later posted double-digit annualized returns from 2016–2018.

A similar pattern emerged in 2020, when oil briefly went negative—insiders at companies like Apache APA, Devon Energy DNV, and ExxonMobil XOM made significant purchases, and their stocks multiplied several-fold over the next 12–18 months.

We are starting to see that kind of insider activity in the oilpatch once again

 Over at Permian Resources PR, board member William J. Quinn just bought 750,000 shares or$9.5 million worth. Quinn also picked up 300,000 shares last September.

Permian Resources is the biggest operator in the Delaware Basin and has been on a buying spree. They picked up Earthstone in 2023, financed entirely with equity, and expect to add over $225 million in annual cost savings. They have $2.5 billion in liquidity, and their debt was just upgraded by Moody's, S&P, and Fitch.

The stock is trading under book value and at a single-digit P/E. That's the kind of setup we like.

Meanwhile, Dorchester Minerals DMLP, one of my favorite royalty trusts, is seeing insider buying. CEO Bradley Ehrman just added to his stake, and the Dorchester Minerals Operating Company has been steadily buying shares.

This trust collects royalties on oil and gas production, with no operational costs. The dividend yield should end up around 10% this year.

Northern Oil and Gas NOG has also seen a shift.

 For most of the last year insiders were selling  small amounts of stock.

That changed last week. Directors Bahram Akhradi and Stuart Lasher just bought over $1.6 million worth of stock.

The stock is down to $27.88 from last year's high of $44.

With 11,000 wells across top basins, a focus on free cash flow, and a 6.5% dividend yield, this is another one that looks positioned for an eventual rebound.

Oil stocks have taken a beating.

But if you follow the insiders, they're telling you something: prices have fallen too far. And when oil bounces back—and it will—these companies are set up to win.