As crude oil surges relentlessly to its highest price since the summer of 2018, it’s tempting to speculate that it will just keep going north, even reaching all-time highs sometime next year. Yet, one famous fund manager is apparently bracing for oil to lose all of its value.
Or at least, that’s what Ark Invest founder and CEO Cathie Wood seems to think. Wood became a financial market celebrity not long ago, when the Ark Innovation Fund ETF soared but then pulled back sharply.
The Innovation Fund is known for weighing heavily in favor of high-flying stocks representing disruptive businesses. Interestingly, Scion Asset Management’s Michael “Big Short” Burry reportedly place a large bearish bet against the Ark Innovation Fund ETF.
Also skeptical is Semper Augustus Investments Group LLC’s Chief Investment Officer Chris Bloomstran, who concluded that Wood and her team “must be counting on growth. Lots of it.”
At the very least, we can say with confidence that Cathie Wood garners a lot of attention. One recent tweet storm, however, stands out as unusual and unabashed.
Perhaps it shouldn’t be too surprising that Wood is in favor of ESG (environmental, social, and governance) investing. After all, ESG businesses can be among the most forward-thinking and disruptive.
That being said, I certainly didn’t see this coming: “The rise in oil prices this year is a function more of supply than demand. At the turn of the 20th century, whale oil faced the same fate and whale oil prices fluctuated dramatically. If @ARKInvest’s research is correct, oil prices will suffer the same fate as whale oil prices.”
This tweet was issued by Ms. Wood on September 30. I don’t know about you, but personally, I wasn’t going to just take her word for it.
Whale oil consumption and production chart. Courtesy: researchgate.net
Thank goodness for Google research. With a little bit of digging, I uncovered a tidbit of history on the rise and fall of the whale oil market, circa late 1800’s.
According to Carnegie Mellon economist Lester Lave, “In the 19th century, we were using whale oil for lighting. It was the best way to get light at night. The problem was that there are only so many whales, and we had more people around. And so basically there just wasn’t enough whale oil. So what happened was that in Western Pennsylvania, they discovered [crude] oil.”
I can only imagine that there were probably folks who placed huge bets on whale oil in the early 1900’s, only to lose their life savings.
Fast-forward to the 2020’s, and we have to ask ourselves: will today’s crude oil industry suffer the same fate as the whalers of yore?
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For his part, Twitter denizen @BubleQe is skeptical, to put it mildly. “What a terrible call. Oil is nearly $70 & likely heading above $100. Supply shortage and demand is soaring,” he replied to Wood’s posting.
Wood then clapped back with a handful of stats: “According to the EIA, global oil demand peaked at 101 million barrels per day (mbd) in 2019, dropped to 92 mbd during the coronavirus crisis in 2020, and has rebounded to 97 mbd in 2021. Based on our forecast for EV sales, @ARKInvest believes that oil demand has peaked.”
OPEC seems to have a different take on the issue as the organization forecasts relatively robust oil demand in 2021, driven by expectations for increased economic activity and travel.
This isn’t the first time that Cathie Wood has tweeted a bold oil market prediction. In June of 2020, she posted, “Oil demand probably hit a secular peak last year and, thanks to #EVs, now is in secular ‘decline’. Though ARK has no formal forecast, I believe that #Oilprices are on their way back to $12, the level reached after the 1973 oil cartel crisis, or lower, now that EVs are taking off.”
So, the $12 oil price prediction isn’t new, but Wood appears to be doubling down on it now that ESG investments are all the rage.
Only time will tell who’s on the right side of this debate. There’s a multitude of factors at work here.
On one hand, you’ve got the multi-national push for cleaner fuels and electric vehicles. Different countries have different net-zero-carbon target dates, but they’re generally either 2030 or 2050.
The other side of the coin is fiat money inflation, which is likely to put positive pressure on commodity prices in general.
Either way, Cathie Wood is sparking discussion among informed investors, and there’s certainly value in that.
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