By Mark Melin
Thank god for collapsing oil, is what French hedge fund manager Pierre Andurand is likely saying right now. Andurand Capital, the $400 million energy fund run by its namesake, was generating middling returns until the last two months of the year, when oil went into freefall, a Reuters report from David Sheppard, citing unnamed sources.
Andurand made a bold call in London at the Oil & Money conference, where he said oil was headed to $50. Since that prediction his fortunes – and that of his hedge fund – have dramatically improved. He is now headed to generate 37.9 percent net performance while pocketing nearly $40 million in fees, most of it coming in the final two months of the year.
Andurand isn’t alone in predicting the fall in oil prices. In March of this year, Edward Morse, Citigroup’s head of global commodity research, raised eyebrows in the commodity world when he predicted that the combination of flattening consumption and rising production should mean the end to $90 per barrel. Morse now sees $90 as an upward ceiling with an average price over the long term in the $70 range. In addition to these two predictions, many managed futures algorithmic Hedge Funds caught sell signals after the trend emerged and continue to ride the price lower.
So where does the price go from here – no one knows but Andurand has some thoughts. Andurand thinks wild price swings would continue in the wake of the Organization of the Petroleum Exporting Countries (OPEC) declined to cut production. Separate sources have noted that Saudi Arabia in particular views the drop in oil as politically expedient on several levels, including Iran as well as diminishing U.S. domestic shale oil production. The U.S., for its part, could like oil for what it is doing to Russia and Venezuela, negatively impacting their economies, while being a defacto stimulus boost in the U.S. to the middle class.
“There needs to be real pain in the oil market before the price can go back up,” Andurand was quoted as saying in December, as he predicted a number of high-cost producers would go bankrupt before the U.S.-led surge in shale supplies slowed enough to balance the market.