Oil bear bets on return to $25 a barrel

One of the biggest bears in the oil market has not been swayed by the snap rally that pushed the crude price up by more than 25 per cent in just three trading sessions.

Pierre Andurand, the hedge fund manager who returned 51 per cent before fees last year by betting against the oil price, told the Financial Times that the market had overreacted to signs of slowing US crude production and comments by Opec. He believes prices will head lower again, possibly dropping below $30 a barrel.

“The market will remain oversupplied in 2016 and 2017,” said Andurand, who predicted the 2008 oil spike and subsequent crash. “We need low prices for longer to rebalance the market. There are no quick fixes.”

His hedge fund, Andurand Capital, is up 10.3 per cent before fees so far this year — 6.5 per cent after fees — and rose 2.5 per cent in August, despite the 27 per cent price oil rally between Thursday and Monday. That spike moved both Brent and US crude into positive territory for the month, closing August at $54.15 a barrel and $49.20 respectively.

Oil prices reversed course again on Tuesday, with both contracts dropping almost 8 per cent by mid-afternoon London time, with a contraction in China’s manufacturing sector refocusing traders on slowing economic growth in the world’s largest commodity importer. Brent dipped back below $50.

Andurand said there was “nothing new” in comments on Monday from Opec, the oil producing cartel, which some traders had interpreted as indicating the group wanted to co-ordinate with other producers to raise prices. Equally, a new survey from the US Energy Information Administration showing US output fell between April and June should not have been a surprise, he said.

“It was well expected by us and other market participants that US production peaked in April and has been declining,” Mr Andurand said.

“[But] we don’t expect US production to go down much further, maybe another 200,000 b/d relative to today. That’s not going to be enough to rebalance the market so there needs to be supply cuts from other countries.”

Operating out of an office in London’s Knightsbridge, dominated by two giant tropical fish tanks alongside the usual banks of multi-screened trading terminals, the French-born fund manager said recent volatility in oil was attracting more investors.

The fund manager, located opposite Harrods, the department store famous for attracting a different kind of oil wealth, has assets under management of around $575m — a near 50 per cent increase since January — driven by new investor cash and positive returns so far in 2015.

He said while oil companies were slashing capital expenditure, the long lead times on most projects meant the impact would not be felt on supplies in the market until around 2019. As such, US benchmark West Texas Intermediate could fall as low as $25 a barrel for up to a month this year, he said — a $20 fall from levels on Tuesday.

“I would expect the range for WTI to be $25-$50 over the next two years.

“If we stay at almost $50 WTI I think US production will grow again relatively strongly.”