Andurand Seeing Rational Iran Bets on Oil Price Dropping

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Pierre Andurand, the oil trader who predicted the top of the market in 2008 and the plunge last month, expects prices to drop about 18 percent over the next six months.

Andurand sees Brent crude declining to $65 to $70 a barrel, according to a Nov. 11 investor letter. He’s betting Iran will increase production after reaching agreement with the U.S. and European Union over sanctions tied to its nuclear program, and that a Nov. 27 meeting of the Organization of Petroleum Exporting Countries that will decide whether to reduce production won’t go far enough, he wrote.

“Iranian oil production should increase,” wrote Andurand, who started the $290 million commodities fund in February 2013. The hedge fund gained 5.4 percent last month and 20 percent last year.

“It appears logical that a deal will be reached, particularly given that this Iranian government is historically one of the more rational regimes with whom the U.S. has had to negotiate,” he wrote.

Bear Market

Global oil prices slid into a bear market last month on speculation the biggest OPEC producers were discounting their crude to maintain market share, resisting calls to cut output amid slowing demand growth. Production increases from North America and Brazil and the surprise rebound of supply from Iran, Iraq and Libya also contributed to the “extreme sell-off,” Andurand wrote.

Brent oil fell 1.7 percent to $79 a barrel today, the lowest price in more than four years, on signs that OPEC won’t cut output.

Georgiana Brunner, a spokeswoman for London-based Andurand Capital Management LLP with Greenbrook Communications Ltd., declined to comment on the client letter.

Andurand, 37, started his career in 2000, when he went to work in Singapore at J. Aron & Co., a unit of Goldman Sachs Group Inc. From 2008 to 2012, he managed as much as $2.2 billion as co-founder of oil-focused commodity fund BlueGold Capital Management LLP.

BlueGold Career

BlueGold, which gained 209 percent in its main fund in 2008, lost 34 percent in 2011. It closed the next year. Some investors had expressed concern about how big the firm had become and its investments beyond the oil market. In a January 2013 interview, Andurand said BlueGold shut after he couldn’t reach an agreement with co-founder Dennis Crema.

Andurand sought to curtail volatility in his second venture, called Andurand, and offered legacy BlueGold clients a chance to invest without performance fees until they recouped losses.

The firm’s bearish stance on oil last month helped the fund reverse losses this year when brent slumped 10.7 percent in October. His fund returned 1.7 percent this year. Macro funds on average fell 1 percent in October paring gains to 1 percent in 2014, according to data compiled by Bloomberg.

OPEC Meeting

Andurand pointed to this month’s OPEC meeting as key to deciding oil prices. The hedge fund told clients that oil could fall as low as $50 a barrel if none of OPEC’s members agree to reduce their output. The most likely scenario, Andurand wrote, is a partial cut that would leave the price of brent crude at $65 to $70 a barrel in the next six months. Andurand called a third option -- a deep reduction resulting in oil at $90 a barrel -- “unlikely.”

Brent crude, used to price more than half the world’s oil, fell below $80 a barrel yesterday for the first time in four years as speculation grew that OPEC will refrain from removing a surplus.

Andurand pointed to long-term economic and technological changes that limit demand for oil, including the waning boom in China and the resurgence of nuclear energy in Japan.

In advanced economies, “efficiency gains and alternative energies encouraged by four years of high crude oil prices” will take a permanent toll on their residents’ demand for oil, Andurand wrote. “We believe the structural decline is here to stay.”

(Updates with brent price decline in sixth paragraph.)
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