Energy prices were one of the main drivers of last year’s soaring inflation…

Natural gas prices nearly tripled in less than a year. And they hit a 14-year high at their peak.

Oil’s move was just as painful for consumers. It jumped 50%-plus in roughly six months… propelling prices to a similar 14-year high. That was also above the psychologically important $100 level that many thought we’d never see again.

Things have calmed down since, though. Natural gas prices have crashed nearly 80%. And oil dropped nearly 40%.

But now, one signal suggests that the declines are over. And in the case of oil, we’ll likely be back above $100 per barrel in the coming months.

Let me explain…

Few investors still believe fossil fuels will pay off as long-term investments. The promise of green energy has captured their imaginations. But the truth is that oil and gas will remain important parts of our world for decades to come.

We’ll still need oil as the world builds green-energy infrastructure. Meanwhile, companies have been drilling for less and less of the stuff as time goes on… which has led to decreased supply. And it’s a big reason why oil prices absolutely soared last year.

We’re on the other side of that move now, though. And after consistently falling oil prices, traders are betting the downward move will continue. The problem is, getting bearish on oil has become the consensus bet…

We can see it by looking at the Commitment of Traders (“COT”) report. This weekly report covers all traded commodities. It tracks the real-money bets of futures traders… which makes it a great way to get an instant read of market sentiment.

Importantly, the COT has a history of being a powerful contrarian indicator. When traders are all betting that a commodity will fall, the opposite tends to happen.

That’s where we are in the oil market today. The COT for oil is near the most negative we’ve seen over the past decade. Take a look…

Traders have steadily become more bearish on oil over the past two years. And they were getting even more bearish as oil prices soared to start 2022.

That’s not what you’d expect. And those bets paid off, too… Oil has had a large decline since last year’s peak. But now, sentiment is hitting crazy levels.

The last time we saw a COT reading this bearish was in early 2016. That was after fracking technology flooded the market with oil. It propelled the U.S. to energy independence and cemented our status as one of the world’s premier oil producers.

But the new supply also contributed to an oil-market crash… Prices were down more than 70% by the time the COT hit that negative reading. And from there, they had nowhere to go but up.

The price of oil roughly doubled over the next year… and nearly tripled in less than three years. And traders hate the commodity nearly as much today as they did before that boom began.

That doesn’t mean oil prices are set to double from here. But it does mean that the smart bet is on higher prices. And as painful as it could get at the gas pump, $100 oil could soon be back.

Good investing,

Brett Eversole

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Source: Daily Wealth