What are the factors contributing to the fluctuating oil prices in 2025? How can investors avoid overreacting to short-term changes in the oil market? What strategies did Kenny Polcari suggest to navigate the volatility of oil investments? Why does Polcari believe that understanding structural forces is crucial for oil investment?
Crude oil is one piece of the market that consistently fluctuates, and it has been no different in 2025. In January, oil prices hit a five-month peak only to plummet just months later. On Friday, oil prices fell further to multiyear lows amid fears of a full-blown trade war. West Texas Intermediate (CL=F) fell more than 7%, while Brent (BZ=F) futures dropped more than 6%. The last time crude traded at these levels was in 2021.
On Yahoo Finance’s Trader Talk, Wall Street veteran trader Kenny Polcari offered a clear direction for investors: “Stop chasing oil prices.” “Every time oil moves, investors scramble to react,” Polcari said in a March 12 episode of Trader Talk (see video above or listen below). “Prices tick up, everyone rushes into energy stocks, convinced oil’s heading to $150 a barrel, prices drop. Suddenly, it’s all about demand, destruction, and recession fears. This constant overreaction is exactly why so many people lose money in the energy trade.”
Polcari stated that “oil is volatile by nature," but it “isn’t going anywhere,” as most of the market’s continuously growing sectors rely on oil. "Betting on short-term moves is a losing game," he said. "Instead, the smart money follows the bigger trend. Despite the push for renewables, the world still runs on fossil fuels. AI data centers, global manufacturing, and infrastructure projects all require massive amounts of energy. The idea that demand is collapsing just isn’t really supported by reality."
Polcari also pointed out that the US is producing near-record levels of oil, giving the country more control over the supply in the market and “keeping a lid on prices.” This sentiment was echoed by Lou Basenese, the executive vice president of market strategy at Prairie Operating Company, an independent oil and gas company. Basenese stated on the podcast that “it’s best to bet right now on the long term for oil.”
Though renewable energy sources have been growing their share of the US energy mix, Basenese pushed back against the idea that the US could fully transition to 100% renewables like solar, wind, and hydropower. "There is no real energy transition," he said. "It might be a rebalancing." The US remains a key player in the oil market, producing a record 13 million barrels a day, Basenese said. However, this won’t prevent traders from having to navigate a volatile market.
As Yahoo Finance’s Ines Ferré reported, President Trump’s tariff program and China’s retaliation tanked crude oil prices this week. Losses extended on Friday as investors digested economic growth concerns and the Organization of Petroleum Exporting Countries and its allies, or OPEC+, said it planned to increase supply. But according to Polcari, oil will continue to be a backbone of the economy, even through geopolitical tensions — and investors can still make a profit from these swings if they know where to look. "Stop trading oil like it’s a lottery ticket," Polcari said. "Instead of chasing price swings, focus on companies built to thrive in any market — refiners, pipeline operators, and energy firms with diversified revenue streams. These are the names that create long-term value, not just short-term spikes. The bottom line is oil is about understanding the structural forces at play. Build a thesis, and then execute.”
Each week on Trader Talk, Wall Street veteran Kenny Polcari brings you expert advice and key market insights from the New York Stock Exchange. You can find more episodes on our video hub or watch on your preferred streaming service.
Why So Many Investors Lose Money in the Energy Trade
The energy market is one of the most dynamic and potentially lucrative sectors in the global economy. However, it is also fraught with risks, complexities, and uncertainties that lead many investors to experience significant losses. Understanding why so many people find themselves on the wrong side of energy investments can help shed light on the multifaceted nature of this market.
Market Volatility
One of the primary reasons investors lose money in the energy trade is the extreme volatility inherent to the sector. Energy prices are influenced by a wide range of factors, including geopolitical tensions, natural disasters, supply chain disruptions, and changes in government policy. For example, the oil market is particularly susceptible to price fluctuations caused by OPEC’s production decisions, conflicts in oil-producing regions, and changes in consumer demand. This volatility can create a rollercoaster experience for investors, leading them to make rash decisions based on short-term price movements rather than long-term trends.
Lack of Fundamental Knowledge
Many investors approach the energy market without a deep understanding of the fundamental factors that drive prices. The energy trade is not just about numbers on a screen; it involves a complex interplay of economic indicators, technological advancements, regulatory environments, and environmental concerns. Investors who lack knowledge in these areas may find themselves placing bets based on speculation rather than solid analysis. Moreover, the energy sector includes various sub-sectors—oil, natural gas, coal, renewables—each with its own unique dynamics. Without a comprehensive understanding of these differences, investors may misallocate their capital or misread market signals.
Timing the Market
Timing is everything in the energy trade, and many investors struggle with this aspect. The energy market can sometimes experience dramatic upswings or downturns that create attractive entry points or signal a bearish trend. Attempting to time these movements often leads many investors to engage in short-term trading, which is notoriously risky. Misjudging the timing can result in losses, especially if one enters a position based on market hype rather than a clear, well-researched rationale. Additionally, the rapid pace of change in energy technology and consumer preferences—such as the shift toward renewable energy—can make traditional timing strategies less effective.
Psychological Traps
Investing is as much about psychology as it is about numbers. Cognitive biases can deeply impact decision-making processes, leading to emotional responses rather than rational actions. The prospect of high returns in the energy sector can lead to greed, causing investors to hold onto losing positions too long in hopes of a recovery. Conversely, fear can lead them to panic sell during downturns. These psychological pitfalls can result in substantial financial losses. Additionally, the allure of following popular trends—often referred to as “herding behavior”—may lead investors into overcrowded trades that ultimately result in losses when the hype fades.
Regulatory Risks
Changes in regulations can significantly impact the energy sector. Investors may not stay informed about policy developments, tax incentives, or restrictions that could affect the profitability of their investments. For example, government policies promoting renewable energy can create opportunities for growth in solar and wind investments but may also decimate traditional fossil fuel investments. Conversely, stringent regulations on carbon emissions can lead to operational setbacks for oil and gas companies. Investors who are unprepared for these shifts may find themselves in positions that become less viable overnight.
Global Economic Factors
The energy market does not operate in a vacuum. Global economic trends heavily influence energy consumption patterns, production levels, and ultimately, prices. Economic slowdowns in major markets can lead to decreased energy demand, while growth can spur higher consumption. For instance, during recessionary periods, energy prices typically drop due to reduced industrial activity and lower consumer spending. Investors who do not consider these macroeconomic indicators may overlook potential red flags, leading to poor investment choices.
Neglecting Diversification
Many investors fall into the trap of “putting all their eggs in one basket” when it comes to energy trading. Concentrating investments in a single sector or asset class leaves them vulnerable to sector-specific downturns. A diversified investment portfolio—spanning various industries or geographical regions—can help mitigate risks associated with energy investments. By failing to diversify, investors may amplify their exposure to the inherent risks of the energy sector, leading to larger potential losses.
Conclusion
While the energy market offers significant opportunities for profit, it is also a territory marked by challenges and risks that can lead to substantial failures. The combination of market volatility, lack of fundamental knowledge, timing difficulties, psychological traps, regulatory changes, economic factors, and insufficient diversification explain why so many investors find themselves losing money in this sector. For those looking to invest in energy, it is crucial to be informed, to recognize the inherent risks, and to approach the market with a strategy that emphasizes education and prudence. Only then can investors navigate the complexities of the energy trade and emerge on the winning side of their investments.
Many investors lose money in the energy trade due to a combination of factors that can hinder their chances of success. Here are some key reasons:
Market Volatility: Energy markets are highly volatile, influenced by geopolitical events, natural disasters, and changes in government policies. This unpredictability can lead to significant financial losses for investors who are not prepared.
Lack of Knowledge: Some investors may not fully understand the complexities of the energy sector, including market dynamics, supply and demand fundamentals, and technological changes. This lack of knowledge can lead to poor investment decisions.
Overleveraging: Investors might employ excessive leverage to amplify their returns, which can backfire if the market moves against them. This can lead to substantial losses, potentially exceeding their initial investments.
Emotional Trading: Emotional decision-making can play a big role in trading. Fear and greed often drive investors to make impulsive decisions rather than sticking to a well-considered strategy.
Dependence on Predictions: Many investors rely on forecasts that can be inaccurate. Predicting energy prices, especially in the short term, is notoriously difficult and can lead to misguided investments.
Regulatory Changes: The energy sector is heavily influenced by regulations that can change rapidly. Investors may not be adequately aware of these changes or their potential impacts, leading to poor investment choices.
Technological Disruptions: Innovations such as renewable energy sources and advancements in energy efficiency can disrupt traditional energy markets. Investors who do not adapt to these changes may see their investments decline.
Market Sentiment: Investor sentiment can significantly impact energy prices. Negative news or perceptions can lead to sharp declines in stock prices, affecting those who are heavily invested in the market.
Diversification Failures: Many investors concentrate their portfolios heavily in a single sector or few assets, leading to increased risk. Without proper diversification, negative events in the energy market can lead to substantial individual losses.
- Timing Issues: Timing the market is difficult, and many investors may enter or exit positions at the wrong times, resulting in diminished returns or losses.
Awareness of these pitfalls and developing a well-thought-out investment strategy can help mitigate risks and improve outcomes in the energy trade.