Astenbeck’s Hall Sees Oil Poised for ‘Violent Reversal’ Higher

After taking a pounding for two months, global oil prices are set for a “violent reversal" upwards, storied oil trader Andy Hall is telling his investors.

Crude prices may have slipped into bear territory this week, after a 20-percent drop since June. But oil supplies are beginning to shrink from the U.S. to Venezuela, a cooler winter is likely to drive up demand over last year and a glut of short-sellers betting on falling prices can only resist the tide for so long, Hall said in a letter obtained by Bloomberg News.

“The market is being driven by its own momentum and currently that is down," Hall wrote to investors in his Stamford, Connecticut, hedge fund, Astenbeck Capital Management LLC. “But extreme positioning coupled with improving fundamentals should ultimately – and at potentially any time – result in a strong reversal."

Brent, the global crude benchmark, settled at its lowest level in almost four months Tuesday. It has slid more than 20 percent from its peak in June, meeting the common definition of a bear market and halting a recovery that saw prices almost double from a 12-year low in February. Investors have driven the market down as inventories of oil and gasoline have remained stubbornly high, despite a two-year slump in prices.

Glut Easing

Despite what Hall called a “miserable month" for oil in July, supplies are still shrinking, he said in his letter, setting up prices to reverse themselves.

“Prices are now back at levels that would ensure the eventual bankruptcy of most of the oil industry," hammering both private oil companies and producing countries like Iraq, Nigeria and Venezuela, Hall said. “Prices at current levels are just not sustainable."

Brent for October settlement closed 34 cents lower at $41.80 a barrel on the London-based ICE Futures Europe exchange.

Parallels ‘Overblown’

Parallels to last year, when an oil rally petered out, are “overblown," Hall said in the letter. While global commercial oil inventories grew by 1.5 million barrels per day in the first half of 2015, this year they’ve increased by just 400,000 barrels, he said.

Known to some peers as the “god of crude oil trading," Hall won big in the last decade by betting on the run-up and eventual crash of crude prices. He’s been trading oil since the 1970s, first for BP Plc and later at legendary trading house Phibro Energy Inc., where he rose to chief executive officer.

Hall’s bets haven’t always worked out. Astenbeck posted a 35 percent loss last year amid the crude-market rout, CNBC reported in January.