Hedge fund manager Pierre Andurand has returned almost 15 per cent this year by betting on a recovery in oil prices and he forecasts the rally has further to run after Opec’s agreement last week to cut supplies.
The French founder of Andurand Capital, which has grown to be one of the world’s largest oil funds, returned 6.1 per cent in November as he positioned for crude’s rally and is up 14.4 per cent in the first eleven months, according to people familiar with the fund’s performance.
“Opec’s agreement was stronger than the market anticipated and with Russia joining [the deal] this has set the market up for further gains,” Mr Andurand said.
“It’s a real turning point for the market,” he added, forecasting oil would hit $70 a barrel early next year.
Since last week Brent, the international benchmark, has rallied by more than 15 per cent, on Monday hitting a year-high above $55 a barrel. Prices slipped on Tuesday, however, dropping below $54 a barrel.
Andurand Capital is one of the few large oil funds — alongside Andy Hall’s Astenbeck Capital Management — to survive a market crash that cooled investors’ willingness to back traders specialising in the sector.
Oil’s rebound in 2016 has helped rekindle interest, however, with funds under management at Andurand Capital more than doubling to $1.5bn, having started the year at $640m.
Mr Andurand first came to the attention of the oil industry in 2008 when his previous fund Blue Gold — run with British trader Dennis Crema — correctly called oil’s spike to close to $150 a barrel and its subsequent crash during the financial crisis.
After BlueGold shut he launched Andurand Capital in February 2013, returning 96.6 per cent since inception through big bets on oil.
After being vocally bearish on crude since mid-2014 the trader flipped positions at the start of this year as oil slipped below $30 a barrel.
“These prices are not sustainable for the next 4-5 years,” Mr Andurand said, arguing supplies were heading for a “structural deficit” because of the drop in investment.
The views of Mr Andurand and other big traders were sought by the Saudi delegation in Vienna the day before Opec’s meeting last week, the Financial Times reported, as the kingdom tried to get a steer on how the market would react in the event supply cut talks collapsed.
Opec eventually agreed cuts of more than 1m barrels a day, the first such deal since 2008.
Mr Andurand said Opec’s largest members believed global investment reductions — estimated at as much as $1tn — allowed them to cut output now without losing market share.
“Saudi Arabia saw the size of capex cuts and that the pipeline of new projects is well down for the coming years, so they were able to act now — unlike in 2014,” he said.
He said US shale output — whose rapid growth between 2010 and 2015 led Opec to first raise output to try and squeeze higher cost rivals — would not rebound fast, despite many producers squeezing down costs to operate in a world of $50 crude.
“Everyone points to the drop in costs for shale producers but that won’t last if the industry accelerates again,” Mr Andurand said, arguing US shale growth would be capped at about 300,000 b/d per year.
“Costs tend to follow oil prices, not the other way around.”