Earlier in the week we shared Pierre Andurand’s hedge fund note blame-casting his fund’s dismal drawdowns on “CTA flows eclipsing the gradual improvement in fundamentals.”
The market sell-off is missing the larger picture, he proclaims.
“Market participants remain extremely focused on micro developments like US crude inventories while the big picture has been telling us a different supply story for quite some time,” he wrote. “In fact, the gradual tightening of crude oil spreads has led to the release of expensive onshore and offshore inventories globally.”
So what could be driving prices lower? Andurand looks at the algorithmic traders and places blame on their non-economic outlook for the price movements. “Without consistent and significant draws invisible onshore inventories, we remain stuck in a trendless and choppy market with CTA flows eclipsing the gradual improvement in fundamentals,” he wrote, pointing to an oddity.
Of course, the permabullish trader had a great year in 2016 (up 22.1%) as oil soared…
But, in what now seems like a moment of supreme irony, we noted earlier that ‘it was a very ugly night for the Andy Halls, Pierre Andurands and other crude longs’ as WTI flash-crashed.
And, courtesy of Reuters’ David Gaffen, we may have found one major culprit (among many we suspect) for the recent rapid collapse in crude oil prices)…
HEDGE FUND MANAGER PIERRE ANDURAND LIQUIDATED LAST REMAINING LONG POSITIONS IN OIL LAST WEEK – MARKET SOURCE
Pierre Andurand, who runs one of the biggest hedge funds specialising in oil, liquidated the fund’s last long positions in oil last week and is running a very reduced risk at the moment, a market source familiar with the development said.
The fund, Andurand Capital is a renowned oil price bull and has been reducing its positions gradually over the course of 2017, the source said, while adding that it remained fundamentally bullish on oil.
It has been a tough few weeks for Andurand…As Mark Constantine tweeted, a few weeks ago Andurand was predicting oil prices to hit $70 later this year
But, of course, Andurand is not alone, in fact it is safe to say that virtually every other commodity trader is on the same side of the boat:
Hedge funds and other big money managers amassed a record number of bullish bets on Brent crude last month, according to the Intercontinental Exchange Inc…. having traded in a narrow range for most of this year, oil posted its biggest two-day selloff since June last week. Oil inventories in the U.S. have recently hit a record high in a sign that the massive glut that has depressed prices for more than two years is still plaguing the market. The U.S. Energy Department expects American oil production to rebound past 9.7 million barrels a day in 2018, breaking the record output level set in 1970.
Should the oil drop continue, given the massive surge in open interest, we suspect Andurand will not be the last to capitulate…
Of course the hope that the capitulation is over has sparked a BTFD off the overnigth flash crash lows… WTI back above $46…
