According to Bank of America, oil may reach $100 per barrel next year since demand outstrips supply.
On the supply side, Bank of America highlighted policy pressure to curb capex to meet goals outlined in the Paris Agreement, as well as calls from ESG-focused investors to shift dollars toward green energy. Judicial pressure to limit emissions is also increasing, with a Dutch court ruling in May requiring Shell to reduce carbon emissions by 45 percent by 2030.
In a note to clients, the firm wrote, “In short, demand is poised to bounce back and supply may not fully keep up, putting OPEC in control of the oil market in 2022.” Last year, as the pandemic sapped global demand for petroleum products, OPEC and its oil-producing allies implemented historic production cuts of nearly 10 million barrels per day.
West Texas Intermediate crude futures have risen by 80% in the last year and were trading around $71.30 per barrel on Monday, while Brent crude futures were at $73.50. While Bank of America believes that gains will be made this year, current market conditions may push Brent to $100 in 2022.
Blanch expects oil demand to increase by 11.7 million barrels per day year on year in the second quarter. Following that, he expects demand to rise by 5.6 million barrels per day over the next three quarters, with global demand reaching 101 million barrels per day by the end of 2022.
“With the oil market likely to remain in deficit as a result of this rapid sequential demand increase, we expect inventory pressure to persist. According to our projections, the oil market will likely remain in deficit for the foreseeable future, with a 0.9 million barrel per day shortfall over the next six quarters.”
According to the firm, Brent and WTI will average $68 and $65 per barrel in 2021, respectively. In 2022, those figures will rise to $75 and $71, respectively. But at that point, the market will likely respond to the higher prices in the form of reduced demand or U.S. supply coming back online, which means Brent should average $65 in 2023, the firm said.
Against this backdrop, Bank of America stated that its top oil ideas include Exxon, Occidental, Hess Corporation, and Devon Energy.
Investors looking for monthly payments may go beyond conventional bank accounts and stale dividend payers and into cryptocurrencies, but new products aren’t risk-free.
There are several ways to earn a return on your crypto assets, some of which may appear to users to be similar to traditional savings accounts. These products, however, are not FDIC-insured and are provided by firms that are less regulated than traditional banks.
“I don’t consider them savings accounts, and neither should anyone else,” Ross explained.
Return on lending.
BlockFi’s interest accounts are one example from a well-known cryptocurrency company. According to Flori Marquez, co-founder and senior vice president of operations at BlockFi, the company generates the yield by lending out users’ assets to institutions for trading activity. The highest interest rates are paid on assets held in stable coins.
Marquez compared the stable-coin account to a “Venmo balance,” and if you keep your assets there, you can earn 8.6 percent (annualized) per month at BlockFi’s account. Deposits of other assets, including bitcoin, at BlockFi earn significantly lower yields on the platform. All of the assets are available for withdrawal at any time.
“You can put a few of your assets on there, and then when the market falls, you can buy $50 in bitcoin. Then you’ll earn interest on the bitcoin, ethereum, or any of the other assets that we allow you to trade,” Marquez explained.
Interest can be paid in a variety of currencies, including bitcoin. Every 30 days, the rate is reset.
“The interest rate that we update on a monthly basis is directly tied to the institutional market,” Marquez explained.
Smaller investment funds provide similar yield-bearing products linked to trading. Marquez admitted that this type of yield is unlikely to last in the long run if crypto continues to gain mainstream acceptance, but he also stated that it is not in danger of disappearing anytime soon.
“Perhaps a decade from now, we’ll see yields start to look more like traditional markets, but the important thing to remember is that we are still so early in the history of this asset class,” she said.
Staking is another method of generating yield.
Miners who validated transactions on the blockchain created new coins in bitcoin and other so-called proof of work coins. People can use proof-of-stake coins, which the Ethereum network is transitioning to, to validate transactions and are compensated for their participation.
Some companies, such as Kraken, make this easier for users in exchange for a cut of the fee. Kraken, a private crypto firm that received approval for a Wyoming bank charter last year and launched a U.S. trading app earlier this month, takes a 15% cut. Coinbase, a publicly traded company, also provides customers with the option of staking.
“The way staking works is that you post your assets, you post your collateral to the network, and you help to validate that network,” explained Jeremy Welch, Kraken’s chief product officer.
People who have a stake in these networks should have a say in how they develop through voting mechanisms. As a result, Welch compared staking to being a shareholder in a company that pays dividends.
One important caveat is that users cannot freely withdraw their staked assets from some networks, including the in-development Ethereum 2.
Kraken currently estimates that staking Ethereum on its network will generate between 5% and 7% per year after fees.
One potential issue with the products mentioned above and similar ones is that they contradict what some consider to be one of the fundamental tenets of cryptocurrency: a decentralized and private way to send money.
Working with third-party companies and funds, on the other hand, introduces counterparty risk, just as working with a bank or other lender on a dollar-based product would.
Both Welch and Marquez stated that focusing on customer service and security is critical to gaining clients and distinguishing themselves from competitors.
“A lot of the criticism you’ll hear from hardcore bitcoin investors is ‘not your keys, not your wallet,’” Marquez said. “And I believe that phrase made sense five years ago, when you weren’t working with licensed entities subject to various US regulators. I believe that as regulations have become more stringent, there is a stronger case to be made for trusting companies to hold assets on your behalf.”
Another factor to consider, given the volatility of the products and their recent price increase, is whether it is worthwhile to focus on relatively small yields, particularly if investors do not have a strong view and understanding of the underlying technology.
According to Ross, it is critical for financial advisors to ask their clients why they want to find yield rather than simply holding different coins.
“With ETH performing so well and Bitcoin performing so well, why do you need that extra 6 percent?” Ross asked.