Time for a Turnaround | Russell T. Rudy Energy LLC
“World Oil” reports that famous hedge fund manager, Andrew Hall, has told his investors that despite a dismal 2015, he thinks crude is ripe for a rebound. Hall, whose Astenbeck Commodities fund lost 35% in value last year, still manages $2.1 billion in assets.
However, when asked about these losses Hall observed that an uncertain macro-economy and strengthening dollar, in conjunction with a moderately oversupplied market, drove prices to their lowest level in decades. Conversely, he feels that now crude is poised for a rebound. He opines, “Conditions for the oil industry have deteriorated dramatically in the past five months…The oil industry cannot function with $50 oil, let along sub $40 oil.”
Accordingly, Hall feels that prices will inevitably move to a level that creates, rather than destroys, supply, and those prices are well above current levels. For example, consulting firm, Wood Mackenzie, has found that energy projects worth $170 billion will be deferred or canceled between now and 2020 at current prices. This would be in addition to $210 billion of cancellations since 2014.
Part of Hall’s rationale for a price rebound is his contention that spare capacity has fallen to as little as 1% of global consumption, and given geopolitical uncertainties, this exposes the market to a rising risk of supply disruption. Oil exporting countries are facing acute challenges from falling energy revenues and resulting budget cuts which are making their citizens restive. Hall also cites escalating tensions between Saudi Arabia and Iran as a potential cause for supply curtailment and rising prices.
While many industry analysts estimated crude oversupply in 2015 at high as 2 million barrels of oil per day (bopd), Hall thinks it was more likely only 800,000. In 2016 he sees the U. S. as leading a non-OPEC drop in production of 1 million bopd. Conversely, he predicts that OPEC production will rise somewhat, mostly from Iran. However, he concludes that rising interest rates will make it much more difficult for indebted oil producers to fund any projects that would maintain or increase production. Consequently, he is bullish on future oil prices.
To read the article in its entirety, please go to http://www.worldoil.com/news/2016/01/27/renowned-oil-investor-sees-conditions-ripe-for-a-rebound-in-crude .
