Two Top Commodity Traders Disagree on Oil’s Path After Rout

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July’s oil rout, the worst since 2008, is leaving two top commodity traders at odds over how long the slump will last.

Pierre Andurand, one of the most successful traders in the past year, told clients in a letter sent July 24 that oil prices won’t recover substantially until 2017. Andy Hall, one of the best-known oil investors, is increasingly adamant that the market has it wrong, writing in an Aug. 3 letter that a perceived glut in oil supply is overstated.

The two managers, among a select group who run hedge funds with heavy exposure to the industry, both profited last year as oil dropped into a bear market. When oil rebounded in the first half of this year, their views diverged, and now the two are completely at odds over whether there’s a glut in the supply of oil that will determine prices.

So far, Andurand’s been right. His main fund at Andurand Capital Management gained 3.5 percent in July, bringing his 2015 gains to 4.8 percent, according to a person familiar with the matter. Hall’s oil-focused commodities fund at Astenbeck Capital Management slumped 17 percent last month, Reuters reported.

A spokesman for Andurand declined to comment. Calls to Astenbeck weren’t immediately returned.

July Slump

Signs that oil was recovering from its collapse last year have vanished since late June. Oil dropped to the lowest level in more than four months on Thursday amid speculation that a global glut that drove prices into a bear market will be prolonged.

West Texas Intermediate crude dropped 1.1 percent Thursday to $44.66 a barrel at 3:18 p.m. in New York. It has fallen 25 percent since the end of June.

Hall, whose $100 million compensation while at Citigroup Inc. in 2009 ignited controversy over pay packages at bailed-out banks, wrote in his letter that while the last month was “brutal” for commodity investors, there’s no fundamental reason that oil shouldn’t rebound. An end to sanctions on Iran wouldn’t have an immediate impact on oil supply, he said, and demand for oil in the U.S. and China is rising.

“There is something of a disconnect between perception and reality,” Hall wrote in his letter, a copy of which was obtained by Bloomberg. He criticized estimates by the International Energy Agency that show a surplus in oil at 3.3 million barrels per day in the second quarter as “difficult to reconcile with what has actually been happening in the oil market.”

‘Oversupplied Market’

Hall said with pessimism in the oil market currently at “extreme levels,” it will take concrete evidence that low prices are having an impact on supply, before oil can stage a sustained recovery.

“We believe that is coming,” he wrote.

Andurand said in his letter that the decline in oil prices last year hasn’t pressured the industry enough to slow production and eliminate a glut of supply.

“This is the first time in the history of an oversupplied oil market when OPEC has not cut production,” Andurand wrote. “It will take considerable time for the market to rebalance on its own.”

Andurand was previously chief investment officer of BlueGold Capital Management, which managed more than $2 billion at its peak and shuttered in 2012. In 2013, he started Andurand Capital, which has $500 million in assets.