What ever happened to the oil-price catastrophe we were all bracing for? Two fund managers say that it's still on the way, and they're ready for it.

Early in the Iran war, several analysts predicted that oil prices would rise well above $100 per barrel and stay there, particularly if the Strait of Hormuz stayed closed for months. Six months into the war, the Strait remains mostly closed to regular traffic, but prices haven't come anywhere close to the worst-case scenario. Brent crude, the international benchmark, hasn't settled above $100 at all in the past month, and it has lately traded just under $90.

Most of Wall Street is already looking past the war at lower prices ahead. Banks see Brent averaging $86 in the fourth quarter and $78 next year. The oil futures curve predicts prices at $77 by this time next year.

But one fund shop with a strong track record of contrarian commodity calls thinks the oil spike is yet to come-and 2027 could be the year of sustained triple-digit prices.

The Goehring and Rozencwajg Natural Resources Equity Fund invests in stocks with large commodity exposure. Managers Leigh Goehring and Adam Rozencwajg make broad macro calls on commodities, from oil and natural gas to uranium and gold. They place their bets using equities instead of futures contracts. The strategy has had a strong record of contrarian and deep value bets, posting 14% annualized returns since inception in late 2015, and 21% over the past five years, more than twice the returns of the S&P Global Natural Resources Index.

This year, the fund has lagged behind its benchmarks, with a 6.4% return through July 31. Among other things, the managers missed the rally in refinery stocks.

In an interview with Barron's, Goehring and Rozencwajg said the relative calm in the broader oil market is masking much deeper stress that's going to be expressed in higher prices whether or not the war ends soon. The pain is starting to show up in fuel markets. Diesel prices are trading near record highs, as demand for diesel around the world is straining the limited supply of the fuel. Refineries in Russia, China, and the Middle East are making less diesel than usual because of the wars in Iran and Ukraine, forcing companies to dip into their stockpiles to supply the market. But those stockpiles are already near tank bottom, they argue. "People that rely on diesel inventories are panicked throughout the world," Rozencwajg says. While the end of the war will eventually allow oil shipments to resume, "the damage is already done."

Once the strait reopens and oil shipping resumes, demand is likely to increase quickly as countries import more crude so they can refill their fuel inventories. The situation reminds Rozencwajg of 2020, when early news about Covid-19 began trickling in. People who raised alarms about supply chains and inflation looked like they were alarmists for the first couple of months. "And then it hit all at once," he says. "We were all running out trying to get toilet paper. I think we're in that kind of moment."

Prices will have to rise because there isn't enough supply growth to meet the coming demand, they say. U.S. shale-oil production has accounted for the lion's share of global oil-production growth in the past decade. But U.S. shale growth is flattening out because companies aren't investing in new projects. Shale production growth will turn negative in the coming months, Goehring said. And no other oil project in the world can make up for diminishing U.S. output. This has happened before, and it led to fast-rising prices.

"We're going to be in a situation where all of a sudden OPEC has lost its biggest source of competition," Goehring says. "And you're going to repeat exactly what happened between 2002 and 2008, where oil prices basically went up four- to five-fold. Oil over the next five to six years was by far the best-performing asset class out there." Goehring correctly predicted that previous oil-price boom, arguing in a 2004 Barron's article that the market wasn't fully taking the undersupply into account.

He expects that crude will trade over $100 for much of 2027, lifting energy stocks along with it.

Goehring and Rozencwajg tend to buy stocks with more concentrated exposure to a macro theme they're pursuing. For instance, they wouldn't buy Exxon Mobil to play rising oil prices, because it's too diversified in other areas such as chemicals.

To play rising oil prices this time, they're making big bets on Canadian oil producers, including as Canadian Natural Resources and Suncor Energy. The Canadian oil sands will be able to sustain production longer than U.S. shale wells, which deplete quickly, Goehring said.

They're also investing in offshore oil-services companies, which have struggled in recent years as demand fell. Some went bankrupt and have restructured. Lately, more companies have been open to offshore drilling as they search for ways to grow production. Companies like Seadrill and SLB should benefit, Goehring says.

In the past month, oil bulls have been licking their wounds. Goehring and Rozencwajg think they shouldn't give up just yet.

Says Rozencwajg: "Just because it hasn't happened yet, doesn't mean it won't."