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Transient Weakness in Oil Prices
Transient Weakness in Oil Prices Oil prices fell sharply last week after OPEC decided not to cut production. While members of the oil cartel acknowledged that prices will remain weak unless production is curtailed, OPEC is not willing to bear the burden of such a decision alone.
We remain positive on oil in the long-term, but believe oil prices will remain under pressure until production is reduced.
WTI crude and Brent are now trading over 30% below the US$100/bbl level that is considered a “fair price” by most OPEC producers and that has historically been defended by OPEC. While weak global demand for oil and distillates combined with ample global supply of crude has weighed on both Brent and WTI prices over the past few months, OPEC inaction contributed to push oil prices below US$70/bbl.
Although OPEC resisted calls to cut production last week, highlighting the need for oil prices to find a new equilibrium, we believe the cartel will eventually have to reduce supply to help stabilise global oil prices. The cartel jointly produces approximately 40% of global oil output. While the US is gaining an increasing share of global output (by displacing oil imports through its own production) and Russia remains a formidable player, we believe it is too early to write off OPEC as an irrelevant cartel when it comes to setting global prices.
Key in the decision not to cut production was the split between OPEC and non-OPEC producers. Over the past few years, non- OPEC countries, particularly the US, have seen the majority of the growth in oil production, progressively taking market share away from OPEC countries. With the US not likely to cut its shale production at this stage, OPEC members are unwilling to take the burden alone.
OPEC has historically played a fundamental role in keeping oil prices above US$100/bbl but shale oil might have changed the shape of the industry permanently. Oil productivity and costs vary considerably across different shale formations (see chart opposite), with striking variances within areas of the same formation. While the marginal cost of production of oil as measured by the 90th percentile of the cost curve of the 50 largest oil and gas companies was estimated to be around US$92/bbl in 2011 (see chart on page 2), shale oil has become increasingly cheaper to produce. The IEA reckons 82% of crude oil and condensates production from the United States is still profitable at a price of US$60/bbl or lower
However, the majority of OPEC countries are estimated to require oil prices of at least US$90-US$100/barrel to balance their government budgets. While these countries can run budget deficits, the appetite to do so will wear thin as the cost of financing starts to increase. We believe that last week’s inaction increases the need for large cut at the June 2015 OPEC meeting.
Although price weakness is likely to continue through the first half of 2015, continued growth from the US and China, combined with a reduction in oil supply, will eventually bring the oil market back to balance with prices returning to trade around the US$90/bbl level. In the meanwhile, we deem appropriate to revise down our short/medium-term targets for WTI and Brent from US$105/bbl to US$70/bbl and from US$110/bbl to US$75/bbl as OPEC’s decision of not cutting production will continue to put pressure on prices. Once we start to see production cuts we expect WTI to move towards US$90/bbl and Brent towards US$95/bbl.
IMPORTANT INFORMATION
This communication has been issued and approved for the purpose of section 21 of the Financial Services and Markets Act 2000 by ETF Securities (UK) Limited (“ETFS UK”) which is authorised and regulated by the United Kingdom Financial Conduct Authority (“FCA”).
Dogecoin’s performance and staying power across multiple market cycles suggest it is not “just another one of those memecoins”.
Over the past decade, DOGE has outperformed even Bitcoin, delivering over 133,000% in returns, nearly 1,000x BTC’s gains in the same period. Despite deep drawdowns during bear markets, Dogecoin has shown remarkable structural resilience.
Following each major rally, it has consistently formed higher lows, a pattern of long-term appreciation and compounding strength.
Historically, Dogecoin has closely mirrored Bitcoin’s movements, often peaking a few weeks after. While 2024 saw Bitcoin dominate headlines following landmark ETF approvals, DOGE still followed its trajectory, though it has yet to stage its typical delayed breakout.
As macro uncertainty continues to fade and momentum returns to the market, retail participation is likely to accelerate, setting up conditions in which Dogecoin has historically thrived.
At the same time, regulatory clarity around Dogecoin has improved. The SEC recently confirmed that most memecoins are not considered securities, comparing them to collectibles. Additionally, they clarified that proof-of-work rewards, like those earned from mining DOGE, also fall outside that scope. These developments further legitimize Dogecoin’s role in the ecosystem, potentially setting the stage for its next paw up, especially as it now holds a firm base around $0.17, nearly 3x its pre-rally level before reaching a new all-time high in the last cycle.
In addition to its long-term performance, Dogecoin stands out as an asset that behaves asymmetrically, offering investors a rare source of uncorrelated returns across both traditional and crypto portfolios. With an average correlation of just 15% to major assets, DOGE’s price action remains largely detached from broader macroeconomic trends, reinforcing its value as a true diversification tool.
Dogecoin demonstrates significant independence within the crypto market, with its correlation to Bitcoin at only 31% and to Ethereum at 37%. This divergence stems from unique capital flow dynamics, where higher-beta assets like DOGE tend to rally after blue-chip crypto assets reach major milestones.
While Bitcoin slowly evolves into a digital store of value and Ethereum powers decentralized infrastructure, Dogecoin remains largely a cultural asset, thriving on narrative momentum and crowd psychology, offering explosive upside when risk appetite surges.
For investors seeking an upside without mirroring the behavior of core holdings, Dogecoin offers a compelling case. Its ability to decouple from market trends while tapping into more speculative surges makes it a powerful, though unconventional, addition to a portfolio with wildcard potential.
Research Newsletter
Each week the 21Shares Research team will publish our data-driven insights into the crypto asset world through this newsletter. Please direct any comments, questions, and words of feedback to research@21shares.com
Disclaimer
The information provided does not constitute a prospectus or other offering material and does not contain or constitute an offer to sell or a solicitation of any offer to buy securities in any jurisdiction. Some of the information published herein may contain forward-looking statements. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties and that actual results may differ materially from those in the forward-looking statements as a result of various factors. The information contained herein may not be considered as economic, legal, tax or other advice and users are cautioned to base investment decisions or other decisions solely on the content hereof.
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