This is the age of wild predictions, for both commodities and cryptocurrencies, but with oil, at least here are some fundamentals to go by. For bitcoin, there’s only sentiment … and whales.
No one, not even big banks, can seem to keep a lid on their headline-grabbing predictions in the age of too much data.
Last week, even as Bitcoin was on a fast-track losing streak, Ark Investment Management CEO Cathie Wood told Bloomberg TV that it would rise to $500,000. It was at $30,000 when she pulled out that crypto-crystal ball.
Bitcoin has shed 50% of its value recently, partly because of Elon Musk, the apparent “God of Bitcoin”, and partly because of news coming out of China and the US.
Last week, the People’s Bank of China announced that financial services companies and payment services are being banned from pricing or conducting business in virtual currencies, citing zero protection for consumers should they incur any losses from crypto transactions.
But nothing moves Bitcoin like a Musk Tweet, and that’s a lot to hedge a $500,000 prediction on.
Reacting to the Tesla CEO’s criticism of Bitcoin and his reversal of an announcement that buyers could pay for a Tesla with the crypto, Wood seemed confident that solar energy would solve all the environmental problems. She also seemed optimistic that the US would approve a bitcoin ETF this year, precisely because of the “correction”.
Wood, however, needs bitcoin to bounce back. After all, she’s on the board of the parent company of Swiss-based 21Shares, which has a crypto ETF product they’re trying to pass off to investors.
The bottom line: Take predictions with a grain of salt because more often than not, they are actually sales pitches.
Are Traders Mad About Oil, Too?
Not nearly as much as with bitcoin. There’s still some sobriety here.
Traders are eyeing a bullish summer for oil, and all predictive caution has been thrown to the wind, with analysts in many ways catching the crypto bug and brushing those tried-and-true fundamentals under the rug.
Fundamentals are boring. Sentiment is exciting, and spreads like wildfire on social media and among a new class of amateur traders.
In other words, $100 oil is in vogue.
As of just two weeks ago, traders were holding options to buy 20 million barrels of $100 oil over three months.
Speaking to CNBC’s Trading Nation late last week, Piper Sandler’s Craig Johnson noted that the energy sector was on track for 40% gains--it’s best quarter ever--and he could “actually see a number that could be north of 100 in the next, say, six to ... 12 months from here”.
Likewise, Laffer Tengler Investments’ Nancy Tengler says OPEC will keep production steady and we won’t see any supply increase until October, so “the price of oil can run pretty handily from here”. Laffler Tengler is calling $80 oil for the summer.
Even Bank of America has said oil prices could spike over $100 per barrel.
In vogue or not, $100 oil certainly is not the consensus view.
It’s still considered the mad view, even if the class of mad traders seems to be growing in size rather quickly.
Oil hasn’t been $100 since 2014, and short-term fundamentals don’t seem to support that price, even with American shale still showing some production restraint.
And perhaps, if everyone heeds (but they won’t) the IEA’s call to forego any new oil exploration in order to achieve net-zero emissions, oil would become precious enough to reach new heights … until it hits peak supply.
Right now, oil is flirting with $70. But $100 a barrel seems unlikely for a commodity that is just barely recovering from the pandemic.
Still, plenty of traders will be noting that Bank of America also predicted back in February that oil would again reach $70 in Q2 2021. It pretty much has, so the bank was spot on and that doesn’t go unnoticed.
And in the case of oil, there’s much more method to the madness, and a bit of math, as well: The EIA’s March world oil consumption forecast is 96.7 million bpd, against supply of only 93.6 million bpd. That should push prices up, though from $70 to $100 is a bit of a stretch on these fundamentals alone.
And there are a million other things weighing on prices at the moment, from the spectre of a deluge of Iranian oil back on the market, to a continued pandemic and--horror of all horrors--another COVID-19 surge if variants aren’t brought under control. That’s all keeping international travel, and all important jet fuel, from recovering.
But it’s a mad world, and predictions have become a sloppy game. That said, if you’re going to go mad, bet on $100 oil before $500,000 bitcoin, which has nothing except sentiment, sales pitches and thin air to support such a surge.
By Charles Kennedy for Oilprice.com