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The CNBC anchor Jim Cramer, the self-professed market strategist Dennis Gartman, and ARK Invest’s Cathie Wood have continued to rank as some of the most prolific contrarian indicators over the past couple of years amid an unwavering zeal with which these personalities have continued to represent the consensus view in the market, barring Cathie Wood who simply appears borderline delusional in the current market dynamics.
Of course, Jim Cramer recently won the apex position in this distinguished list after spawning a dedicated Inverse Cramer ETF, which is currently awaiting formal approval from the SEC. Lest our readers doubt the supposed utility in flipping Cramer’s recommendations, do note that IndexOne’s virtual inverse Cramer index – dubbed the i1 Inverse Cramer – is currently up a whopping 31.90 percent so far this year. For reference, the S&P 500 index is still down around 17 percent in the same timeframe.
OIL RISES IN CHOPPY TRADING, WTI CRUDE FUTURES UP BY $1 https://t.co/EBDKse3xck
— zerohedge (@zerohedge) December 12, 2022
Let’s now explore the core thesis of today’s topic. Jim Cramer recently said that oil – and here we assume that he is referring to the WTI contract – is going to $65 a barrel. Interestingly, just as Cramer was laying out his bearish case for crude, Bloomberg reported that WisdomTree’s Brent Crude Oil ETP (BRNT) attracted a record $500 million in inflows last week, more than tripling the ETP’s assets, which stood at a paltry $200 million before this bullish influx. Moreover, the market’s largest ETF, the $2.4 billion US Oil Fund (USO), also recorded $169 million in inflows last week, corresponding to the highest such influx since August 2020.
So, why are some institutional investors now starting to bet big on crude oil’s prospects, predictably tarnishing the prospects of Jim Cramer’s latest bearish call? Well, oil’s 2022 story has revolved around two contrasting influences: the bullish impulse from the Russia-Ukraine conflict has largely been neutralized by China’s zero-COVID policies. However, over the past couple of days, following unprecedented protests across China, the Asian giant has undertaken a swift withdrawal of some of the most stringent COVID-related mandates, removing this persistent dampener on the global oil demand.
Concurrently, the US and the EU have now imposed a $60 price cap on Russian crude shipments, prohibiting the provision of insurance to any shipment that exceeds this price ceiling. With Russia’s Ural grade oil already trading at a substantial discount to this cap, it would seem that the ceiling would have a minimal impact on crude oil’s price dynamics, as illustrated by Jim Cramer in his bearish take. However, the reality is much more nuanced. First, as noted by OilPrice, the physical oil market trades on the basis of premiums and discounts relative to the forward prices of major international crude oil benchmarks. Rarely is any crude traded on a fixed price basis. This introduces substantial uncertainty into the matrix and prevents large traders from touching any Russian crude on the remote possibility that a contracted shipment might breach the cap. It also significantly increases due diligence and oversight costs related to Russian shipments.
Of course, Russia has assembled a shadow fleet of its own tankers. However, at least in the short run, even this fleet will be unable to transport the entirety of Russian crude to customers in India, China, Turkey, etc. This means that Russian oil exports are quite likely to decline. Add China’s reopening into this volatile mix, and it is quite understandable why some traders are now placing bullish bets on oil, rubbishing Jim Cramer’s bearish thesis in the process. The man just can’t catch a break.
Do you think Jim Cramer will be right on his bearish crude oil call? Let us know your thoughts in the comments section below.
