This is an age of great predictions, whether it is oil or cryptocurrency. However, the impression gained on the basis of information placed in the public is that even large banks make unfounded forecasts, although for oil there is at least a realistic basis for more reliable estimates than those made.

May 31, 2021 - 05:02
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Bitcoin oscillations are at least predictable. First, it grows, then it drops, and then again a dizzying jump occurred until the previous week when the losses became drastic. And all that was happening at a time when the executive director of ARK Investment Management, Cathie Wood, in a statement for Bloomberg, estimated that the value of this most popular cryptocurrency would increase to $ 500,000, reminds the OilPrice portal.

At the time, the value of Bitcoin was about $ 30,000.

All in all, the value of this most popular cryptocurrency, recorded on May 19, was half of its historical record from April 14, when Bitcoin was worth 64,869.78 dollars.

True, that was still more than the value recorded at the beginning of the year.

However, it is obvious that these serious oscillations did not come at random and that they can be primarily attributed to the change in the attitude of one of the leading technological billionaires.

"Tesla has stopped using Bitcoin currency in the car trade due to concerns about climate change," CEO Elon Musk wrote on Twitter on May 13.

The value of Bitcoin fell by 10% after the publication of this tweet, as well as the shares of the company Tesla.

Earlier, in March, the company announced that it would accept the cryptocurrency, which was criticized by some investors and environmentalists.

In February, the electric car maker revealed that it had bought the world's largest digital currency worth $ 1.5 billion, only to put out a new statement about ending the use of Bitcoin due to climate change, or "increased use of fossil fuels, especially coal, which has the worst emissions".

However, the steep decline in the value of this cryptocurrency was caused in part by the attitude of the United States, which does not consider Bitcoin a currency, but a means of payment that can be taxed, and China also had a role in this.

The National Bank of China announced last week that it has banned banks and payment companies from trading digital currencies, calling for consumer protection if they suffer any loss in crypto transactions.

However, in the light of these events, the indicative assessments of experts who are known as market experts are quite indicative.

Reacting to Tesla's CEO's criticism of Bitcoin and its change of attitude that customers can pay for Tesla vehicles in cryptocurrency, Ark Investment Management CEO Cathie Wood said she was convinced that solar energy would solve all environmental problems and that the United States would approve Bitcoin funds traded on the stock exchange this year, precisely because of the "correction".

OilPrice estimates that the CEO of Ark Investment Management actually needs the Bitcoin to return to its earlier value, a higher one because she is on the board of the Swiss company 21Shares, which owns crypto funds that they are trying to sell to investors.

This is the reason why OilPrice, as a specialized portal for energy, finance, and analysis of global markets, states that these and similar forecasts should be taken with a large dose of the reserve.

How is the price of oil formed?

How the market value of a cryptocurrency is estimated can hardly be related to the principles that apply to determining the price of oil.

Judging by the analyzes of various experts that are presented to the public, it seems that this is still possible.

That is why we can better understand why oil traders are angry because the situation on this market cannot be nearly as uncertain as to the one with cryptocurrencies.

However, that is really happening.

Caution in predicting the direction of oil prices, which depends on the influence of many factors, has now been thrown aside. Meanwhile, estimates are increasingly using similar models or even identical to those used to determine the value of cryptocurrencies.

The impression is that the excitement that accompanies trading in cryptocurrencies has been transferred to the oil sector and that various estimates of the value and direction of oil are increasingly being made without a firm foothold, mainly through social networks among a new class of amateur traders.

In other words, the price of oil of 100 dollars per barrel is a matter of trend today.

The argument for this claim is as follows.

Let’s say that until just two weeks ago, oil traders held the option to buy 20 million barrels of oil for $ 100 over the previous three months.

Speaking to CNBC late last week, Craig Johnson of the US multinational independent investment bank, Piper Sandler, said the energy sector was well on its way to making a 40 percent profit and was the best quarter for the oil sector ever. He added that oil prices could only rise above $ 100 over the next six months or even a year.

The U.S. Energy Information Agency (EIA), for example, stated in its global consumption forecast for March that consumption was 96.7 barrels of oil per day, while oil supply was also at a daily level of 93.6 million barrels. (Source: EIA)

On the other hand, Nancy Tengler, an investment banking expert from the American consulting company Laffer Tengler Investments, made a not-so-optimistic assessment.

She said the Organization of the Petroleum Exporting Countries (OPEC) would keep production stable, and would not increase supplies until October. That means that the price remains stable. However, during the summer the price could fall to the value of 80 dollars per barrel, said Tengler.

At the same time, Bank of America, as the second-largest American bank, estimated that oil prices could jump to more than 100 dollars per barrel.

These and some other examples can show that the estimate of the oil price of 100 dollars did not receive a general agreement.

Oil did not have a value of 100 dollars per barrel in 2014, and it seems that short-term demand trends do not support that price even today, even if American shale oil, which is recovering from the collapse, still shows certain restrictions in production.

If everyone adhered to the call of the International Energy Agency (IEA) to give up any new oil exploration to achieve net-zero emissions, oil would become valuable enough, until it reaches the peak of supply.

Currently, the price of oil balances at $ 70, with a small likelihood it could reach a price of $ 100 a barrel, given that it is an industry barely recovering from the pandemic.

The same Bank of America, which now gives a forecast on the price of oil of $ 100 or even higher, predicted back in February that oil would reach the value of $ 70 again in the second quarter of 2021, and it was right. This did not go unnoticed, evaluates the journalist of the OilPrice portal Michael Kern.

The forecast for global oil consumption for March, presented by the US Energy Information Administration (EIA), also shows how illogical the estimates are. First, it is stated that the consumption amounted to 96.7 million barrels per day, while the supply was only 93.6 million barrels per day.

It is also estimated that these indicators should encourage price growth, although it is almost impossible to expect growth from 70 to 100 dollars per barrel, if that expectation is based on such facts, ie the stated ratio of consumption and demand.

Many factors are currently putting pressure on and adversely affecting the prices of this fossil fuel, ranging from fear of the return of Iranian oil to the market to the continuation of the pandemic and the emergence of new strains of the virus.

All this harms the recovery of international air traffic, which is significant due to fuel consumption.

However, it is quite clear that market assessments are more arbitrary than truly expert, and if one intends to make predictions, it would be better to bet that the price of oil will reach $ 100 than that Bitcoin will be worth $ 500,000. This is because when it comes to cryptocurrency, apart from strong advertising and a good or bad feeling, there is nothing more that would justify its growth in market value.

By: Nitza - Gossip Whispers