Goldman Raises Year-End Oil Price Target To $90
Just days after Goldman’s head commodity analyst Jeff Currie told Bloomberg TV that the bank anticipates oil spiking to $90 if the winter is colder than usual, on Sunday afternoon Goldman went ahead and made that its base case and in a note from energy strategist Damien Courvalin, he writes that with Brent prices reaching new highs since October 2018, the bank now forecasts that this rally will continue, “with our year-end Brent forecast of $90/bbl vs. $80/bbl previously.”
What tipped the scales is that while Goldman has long held a bullish oil view, “the current global oil supply-demand deficit is larger than we expected, with the recovery in global demand from the Delta impact even faster than our above consensus forecast and with global supply remaining short of our below consensus forecasts.”
Among the supply factors cited by Goldman is hurricane Ida – the “most bullish hurricane in US history” – which more than offset the ramp-up in OPEC+ production since July with non-OPEC+ non-shale production continuing to disappoint.
Meanwhile, as noted above, on the demand side Goldman cited low hospitalization rates which are leading more countries to re-open, including to international travel in particularly COVID-averse countries in Asia.
Finally, from a seasonal standpoint, Courvalin sees winter demand risks as “further now squarely skewed to the upside” as the global gas shortage will increase oil fired power generation.
From a fundamental standpoint, the current c.4.5 mb/d observable inventory draws are the largest on record, including for global SPRs and oil on water, and follow the longest deficit on record, started in June 2020.
For the oil bears, Goldman does not see this deficit as reversing in coming months as its scale will overwhelm both the willingness and ability for OPEC+ to ramp up, with the shale supply response just starting.
This sets the stage for inventories to fall to their lowest level since 2013 by year-end (after adjusting for pipeline fill), supporting further backwardation in the oil forward curve where positioning remains low.
But what about a production response? While Goldman does expect short-cycle production to respond by 2022 at the bank’s higher price forecast, from core-OPEC, Russia and shale, this according to Goldman, will only lay bare the structural nature of the oil market repricing. To be sure, there will likely be a time to be tactically bearish in 2022, especially if a US-Iran deal is eventually reached. The bank’s base-case assumption is for such an agreement to be reached in April, leading the bank to then trim its price target to an $80/bbl price forecast in 2Q22-4Q22 (vs. its 4Q21-1Q22 $85/bbl quarterly average forecast). This would, however, remain a tactical call and a likely timespread trade according to Courvalin, with long-dated oil prices poised to reset higher from current levels, especially as the hedging momentum shifts from US producer selling to airline buying (a move which Goldman says to position for with a long Dec-22 Brent and short Dec-22 Brent put trade recommendations).
Meanwhile, the lack of long-cycle capex response – here you can thank the green crazy sweeping the world – the quickly diminishing OPEC spare capacity (Goldman expects normalization by early 2022), the inability for shale producers to sustain production growth (given their low reinvestment rate targets) and oil service and carbon cost inflation will all instead point to the need for sustainably higher long-dated oil prices. Remarkably, Goldman now expects the market to return to a structural deficit by 2H23, which leads it to raise its 2023 oil price forecast from $65/bbl to $85/bbl, and the mid-cycle valuation oil price used by Goldman’s equity analysts to $70/bbl.
Translation: expect a slew of price hikes on energy stocks in the coming days from Goldman.
Finally, where could Goldman’s forecast – which would infuriate the white house as gasoline prices are about to explode higher – be wrong? For what it’s worth, the bank sees the greatest risk on the timeline of its bullish view. On the demand side, it would take a potentially new variant that renders vaccine ineffective. Beyond that, however, the bank expects limited downside risk from China, with its economists not expecting a hard landing and with our demand growth forecast driven by DMs and other EMs instead. This leaves near-term risks having to come from the supply side, most notably OPEC+, which next meets on October 4. And while an aggressively faster ramp-up in production by year-end would soften (but not derail) our projected deficit, it would only further delay the shale rebound, which would reinforce the structural nature of the next rally given binding under-investment in oil services by 2023. In addition, a large ramp-up in OPEC+ production would simply fast-forward the decline in global spare capacity to historically low levels, replacing a cyclical tight market with a structural one.
The full report as usual available to pro subscribers in the usual place.
Crypto roundup: Valkyrie Bitcoin ETF debuts on Nasdaq; market dips a bit
Bitcoin now has its latest US-based futures exchange-traded fund (ETF), with the Valkyrie BTF product officially launched on New York’s … Read More
Bitcoin now has its latest US-based futures exchange-traded fund (ETF), with the Valkyrie BTF product officially launched on New York’s Nasdaq stock exchange. The crypto market overall, meanwhile, has pulled back a bit.
Digital asset manager Valkyrie’s ETF joins the similar ProShares product in the US market, BITO, which had been crushing it with record amounts of volume for an ETF launch in its first two days.
Because Bloomberg’s senior ETF analyst Eric Balchunas is the go-to guy on Twitter for insights on these matters, we’ve gone to his feed once again…
Nice look at just how ridic $BITO‘s first two days of volume were. Here it is vs the next most successful ETF launches of all time. It did double any of them, and is in good co w/ second day growth (see $QQQ, $GLD) via @tpsarofagis pic.twitter.com/WLzQt7yD3t
— Eric Balchunas (@EricBalchunas) October 21, 2021
As for the Valkyrie Bitcoin ETF, it also seems to be off to a reasonable start. Shame its ticker couldn’t have been BTFD, though… (Don’t geddit? Look it up here.)
— Eric Balchunas (@EricBalchunas) October 22, 2021
“This Bitcoin Strategy ETF is a major leap forward for this asset class,” said Valkyrie CEO Leah Wald in a statement today.
“It enables investors to participate in the digital asset markets through a regulated, transparent product that trades on a trusted, reliable exchange and can be bought and sold as easily as any other investment currently available.”
Paul Tudor Jones still likes Bitcoin as inflation hedge
As has been well documented by Stockhead, and others, the current crop of regulator-approved ETFs track the value of BTC futures listed on the Chicago Mercantile Exchange (CME).
A spot-backed, or physically backed Bitcoin ETF is the one the crypto crowd really wants, however, as this is the product that’d require funds to take full custody of Bitcoins, instead of essentially trading in IOUs at premiums and discounts to the actual BTC price.
As billionaire hedge-fund manager Paul Tudor Jones said to CNBC earlier this week regarding the new ETFs:
“I think a better way to get in would be to actually own the physical Bitcoin, to take the time to learn how to own it. But I think the ETF would be fine. I think the fact that it is SEC-approved should give you great comfort.”
Tudor Jones also confirmed Bitcoin is his preferred inflation hedge right now, against a weakening US dollar.
“Clearly, there’s a place for crypto,” he said. “Clearly, it’s winning the race against gold at the moment … It would be my preferred one over gold at the moment.”
To be rid of risks, you need to take one. #Bitcoin
— Michael Saylor (@saylor) October 22, 2021
— naiive (@naiiveclub) October 22, 2021
Mooners and shakers
So, overall we’re seeing another reddish day in the crypto market. It might have something to do with some big-player profit taking after an extremely positive week on the whole. A week that clocked new all-time highs, and not just for Bitcoin.
At the time of writing, the entire crypto market cap, consisting of about 10,000 coins on about 550 exchanges, is down by about 1.5 per cent since this time yesterday. It’s chilling out around US$2.64 trillion in total valuation, give or take a few hundred million.
And as you can see from the top-coin market overview above, Bitcoin (BTC) and Ethereum (ETH) are a little stagnant today – down about two to three per cent in the past 24 hours.
There are outliers in the top 10, though, most notably “layer 1” smart-contract platform Solana (SOL), which is getting very close to touching the all-time high of $2.13 it set about a month ago. It’s changing hands for US$2.09 and up 15 per cent.
Could ex-England football striker Wayne Rooney have caused a surge? Yeah, probably not…
— Wayne Rooney (@WayneRooney) October 22, 2021
One of Solana’s main rivals, Polkadot (DOT), is also having a decent day, up about four per cent, and digging in around US$44. Anticipation for the Polkadot parachain crowdloans is building. They begin on November 11.
And there are other strong ones in this playing field faring even better: Avalanche (AVAX) is up 11.5 per cent since yesterday, while Fantom (FTM), and Elrond (EGLD) are both about 11 per cent to the good.
And the the highly rated Kusama-based platform Moonriver (MOVR) is also glowing, up 24 per cent since this time yesterday, and +54 per cent over the past seven days.
DeFi beaut THORChain (RUNE), meanwhile is still surging, up 18.5 per cent over the past day and 35 per cent on the week.
As for the overall market as we head into the weekend, it feels like we’re in another holding (or HODLing) pattern, waiting once again for the next big move. Could go up… could go down… could go sideways. You didn’t come here for searing technical analysis, did you?
— AAXXII Venture Capital (@aaxxiivc) October 20, 2021
The post Crypto roundup: Valkyrie Bitcoin ETF debuts on Nasdaq; market dips a bit appeared first on Stockhead.
MicroVision Has Decades of Failed Hype and Not Much Else
MicroVision (NASDAQ:MVIS) is a company seeking to commercialize light detection and ranging (lidar) technology. The company has been in business since…
MicroVision (NASDAQ:MVIS) is a company seeking to commercialize light detection and ranging (lidar) technology. The company has been in business since the 1990s and has little to show for it. MVIS stock peaked around $500/share during the 2000 dot-com bubble, and trades at a tiny fraction of that today.
That said, MicroVision has been a penny stock for most of the past decade. So its surge up to $28 earlier this year was certainly noteworthy. However, shares are once again in steep decline. And, as a deeper look at the company will show, traders are making a sound assessment of the situation by unloading their holdings.
MicroVision’s Nano-Scale Business
The company’s name is apt in at least one way: This is a tiny operation. The company had just 52 employees as of year-end 2020. Over the past decade, the company’s single most successful year was 2018, when it generated $18 million in revenues. However, that modicum of momentum was fleeting; revenues have since collapsed to a small fraction of that figure. Needless to say, the company generates large and consistent operating losses.
As of December 2020, MicroVision has run up an accumulated shareholder deficit of $568.2 million. Despite burning through more than half a billion dollars of investor funds over the decades, MicroVision generated a grand total of just $3 million in revenue in 2020. That’s truly woeful levels of return on investment right there.
Even with its many long years in the technology industry, MicroVision has failed to launch any meaningfully successful products. It keeps telling shareholders that something it tries will succeed. And it has some patents, so that gives a reason for hope. But at some point, investors should look at the dismal track record and strongly reconsider whether MVIS stock has any merit at all.
Interactive Displays Dramatically Underwhelmed
MicroVision bulls are excited because the company is supposedly at the cusp of meaningful production for its automotive lidar product. Any quarter now, it’s all going to start happening.
We’ve heard this story before. Back in 2019, for example, MicroVision’s former CEO Perry Mulligan was telling shareholders that the company’s interactive display product was about to hit it bigtime. “Consequently, we now expect Display-only and Interactive Display products could launch in mid-2020, with first revenue to us likely starting in Q2 2020 and the potential for profitability, depending on volumes and product mix considerations, one quarter later,” Mulligan said in July 2019.
Feel free to review MicroVision’s financial statements to see how well that prediction played out. Mid-2020 came and went, and there was virtually nothing in the way of revenues. The idea of profits seems even more fanciful; the firm instead lost $14 million in 2020. Ultimately, MicroVision has backpedaled from this product, instead turning its attention to automotive lidar.
Hilariously, Mulligan described the interactive displays product as MicroVision’s “high-water mark” in its ability to execute. The high-water mark barely made a ripple. Mulligan had also suggested that MicroVision could sell one to three million units of that product line in the first 12 to 24 months of production. Not even close.
MVIS Stock and the Lidar SPACs
For awhile, MicroVision was alone in the public markets lidar space. That changed in a big way with the special purpose acquisition company (SPAC) boom, though.
Over the past year, we’ve seen at least three lidar-focused firms come to the stock market via SPACs. Luminar (NASDAQ:LAZR) is the most-well known and successful of these offerings so far. Despite brutal conditions for SPACs, Luminar is still trading around $16, well above its initial $10 SPAC price.
For those looking for a discount, there’s also Velodyne Lidar (NASDAQ:VLDR), which is trading around $6, and AEye (NASDAQ:LIDR), which is going for $4.50 per share. All of these are aiming to bring lidar to electric vehicles (EVs). One or two of these is likely to be quite a winner, but not every player is going to succeed. And with all this new money chasing these lidar firms, it threatens to leave MicroVision in the dust.
Some of these firms have strong partners, too. Luminar, for example, will be the technology provider for Volvo’s (OTCMKTS:VLVLY) next-generation vehicles. Luminar has demonstrated it can build a product and find top-tier customers for it. MicroVision, despite spending many years in the industry, has not achieved a similar feat.
MVIS Stock Verdict
MicroVision shares previously may have had some scarcity value as one of the only pure-plays in the lidar space. Now, however, far more promising and better-funded competition has arrived on Wall Street. As such, there’s no reason to be holding onto MVIS stock anymore. Arguably there was some hope of a short squeeze, but even that is starting to flicker as the hype dies down.
Lidar will likely end up being a key piece of the electric vehicle industry. There’s a far lower probability that MicroVision will end up securing much of the eventual revenues from that development, however. An investment in a more credible rival such as Luminar or Velodyne seems to make far more sense at this time.
On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.
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The Biden Full Court Press Against Economic Freedom
I’ve been following economic policy closely since Richard Nixon’s assault on economic freedom with his August 15, 1971, economywide price controls….
I’ve been following economic policy closely since Richard Nixon’s assault on economic freedom with his August 15, 1971, economywide price controls. While there have been ebbs and flows in economic freedom in the fifty years since then, I have never seen anything like the full court press against economic freedom exercised by President Biden and his administration. To the extent it succeeds, it will not only reduce our freedom but also slow the growth of our real income.
If you think Biden’s policies compare to Jimmy Carter’s, you would be wrong. Carter’s energy policies were horrendous. He continued Nixon’s and Ford’s price controls on oil and gasoline until he finally started to phase them out in his last year in office; he dictated minimum and maximum temperatures for buildings; and he set energy standards for appliances that have made them less useful and more expensive. In one of his worst hires, he appointed G. William Miller as chairman of the Federal Reserve and Miller went on to print more money and cause more inflation. But Carter was a leader in ending economic regulation of airlines, of trucking, and of railroads. Airline deregulation made airline travel cheaper and made it much easier for middle-class people to fly multiple times a year. Trucking and rail deregulation made those shipping modes more efficient and cheaper. And in 1979 he appointed Paul Volcker as fed chairman and Volcker went on to follow a semi-monetarist policy that, under President Reagan, brought inflation down to low single digits. Carter also signed a tax bill in 1978 that reduced the tax rate on long-term capital gains.
Nothing that the Biden administration has done or is proposing on economic policy is comparable to Carter’s accomplishments. On every front, Biden and his appointees are pushing for massively higher spending, taxes, and regulation. Moreover, simply looking at the budget numbers, scary as they are, understates the damage because of the particular way the proposed programs are structured. Many of the programs set up bad disincentives and also intrude in private decision making that has worked out fairly well.
These are the opening three paragraphs of David R. Henderson, “The Biden Assault on Economic Freedom and Prosperity,” Defining Ideas, October 21, 2021.
And note this on the proposal for reducing further people’s financial privacy:
Arguably the most intrusive regulation the Biden administration proposes is the one on people’s accounts in financial institutions. USA Today recently corrected an InfoWars exaggeration of the plan. The InfoWars headline: “Biden’s Treasury Dept. Declares IRS Will Monitor Transactions of ALL U.S. Accounts Over $600.” USA Today pointed out two mistakes. First, the Treasury can’t make such a move without Congress’s authorization. Second, writes Ella Lee of USA Today, “[E]ven if the proposal is adopted banks would not provide access to individual transactions, just the total amount flowing in and out of an account annually.” The correction is important but is it supposed to be comforting? Democrats announced that they would raise the threshold from $600 to $10,000. But you need only have an average of $834 a month flowing out of your account to trigger IRS surveillance. So the IRS would know more about the majority of account holders than they do now.
Recently, Norah O’Donnell of CBS News asked Treasury Secretary Janet Yellen about the proposal. Yellen claimed that it was to catch wealthy people who are massively evading taxes. Yellen gave an example of someone who reports income of $10,000 but has $3 million flowing out of his checking account. Said Yellen: “That tells the IRS that’s an individual you might audit.” And this has exactly what to do with people whose flow out of their bank account is $10,000? Yellen was widely regarded as a first-rate economist. Surely, she’s still enough of an economist to know the difference between $10,000 and $3 million. Her sticking to her guns on the surveillance proposal suggests something more sinister: that she wants to go after, not the just the high-rolling tax cheats, but also, say, the gardener who gets away with paying a few hundred dollars less in taxes in a year.
Read the whole thing.
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