Hedge Funds are going all out against oil, as short positions in crude markets reach a four-year high. Data from CFTC shows that short positions in West Texas Intermediate crude increased to 92,403 futures and options in the week ending January 20th.
Oil below $50 will be the new normal
The current wager on the fall in oil prices is the largest since September 2010, reports Mark Shenk for Bloomberg. Stewart Glickman, an equity analyst at S&P Capital, was quoted as saying that $50/barrel could be the new standard that markets will eventually have to accept. Meanwhile, oil supply continues to exceed targets as OPEC countries produce more than current demand.
As the list of hedge funds burnt by the oil decline either directly or indirectly grows, there are also those who were betting on the winning side of this trade. A notable name among the winners is Stan Druckenmiller’s alum, Zach Schreiber, who runs PointState Capital. The hedge fund generated a 27% gain in last year as it raked in $1 billion in profits from its bets against oil.
Hedge funds make money from shorting energy companies
Hedge funds have also been profitable in their bets against energy companies in Europe. France-based provider of geophysical services to oil explorers, CGG SA, has been a profitable short in the past year. The company, formerly known as Compagnie Generale de Geophysique-Veritas, suffered an over 60% decline in share price last year. Hedge funds who are currently short CGG are Amber Capital and AQR Capital.
Short interest in Petrofac peaked in the second week of January, according to disclosures made to the U.K’s Financial Conduct Authority. Petrofac provides construction and engineering solutions to the oil and gas industry. The company is being shorted by Marshall Wace, Adelphi Capital, AKO Capital and AQR Capital. Petrofac was down 40% last year.
Other popular shorts among the oil and gas engineering and servicing companies are SBM Offshore and Amec Foster Wheeler plc. Jim Chanos, Marshall Wace, Discovery Capital and BlueCrest Capital have made money from shorting SBM Offshore, which is a Dutch company that provides services to energy companies.