As crude oil fell to $38 a barrel earlier this week, hedge fund manager Pierre Andurand told investors that prices will decline further amid weakness in China and emerging market economies.
“Demand has been frontloaded, distorted by tertiary restocking and Chinese SPR buying that has effectively borrowed demand from the future,” Andurand said in a letter sent to his clients on Aug. 25, referring to strategic petroleum reserves. “Once restocking and Chinese SPR buying is over, we expect to return to a very weak demand growth.”
Andurand, 38, who has predicted falling oil prices since October, said he increased the amount of risk in his hedge fund in August for a second month. His Andurand Commodities fund has gained 4.2 percent this month through Aug. 21 and about 9 percent for the year, according to an investor.
Andurand had told clients last month that prices won’t recover substantially until 2017. Crude climbed the most in three years today as data showed the U.S. economy grew more than previously estimated. Prices had fallen to $37.75 on Monday, the lowest level since February 2009, as concern over slowing demand in China fueled volatility in global markets.
West Texas Intermediate for October delivery climbed $3.70, or 9.6 percent, to $42.29 a barrel at 2:50 p.m. on the New York Mercantile Exchange. Prices have decreased 21 percent this year.
Andurand said in this month’s letter, a copy of which was obtained by Bloomberg, that the drop in oil prices is different from the previous decline because contracts for delivery further out in the future have also fallen.
The generic 60th-month contract for West Texas Intermediate crude oil, which currently corresponds to deliveries in Sept. 2, 2020, slumped to $56.24 a barrel on Aug. 24, the lowest since December 2005. Such long-dated futures are typically referred to by traders as the “back-end” of the oil curve.
“This demonstrates to us both deteriorating oil fundamentals as well as a dwindling confidence in a quick price recovery,” he wrote.
Andurand’s hedge fund, Andurand Capital Management, is based in London and manages $525 million. His fund gained 38 percent last year. Rob White, a spokesman for Andurand at Greenbrook Communications, declined to comment on the letter.