Oil Trading "God" Loses $500 Million In July On Commodity Rout

Tyler Durden's picture

Back in December 2014, when crude oil first crashed into a bear market and traders were desperately looking under nook and cranny for the first casualty of the commodity collapse, they found it in the face of oil trading "god", Andy Hall, best known for seeking $100 million in compensation in 2008 from Phibro's then-owner Citigroup, who would leave his long-term employer Phibro by the end of 2014 for the simple reason that after 113 years of operation, Phibro would liquidate in the US, having been unable to find a buyer (with rumors circulating that Hall's trading P&L did not exactly help the company's long or short-term prospects).

While Hall did sever his relationship with the liquidating Phibro (and may have accelerated its collapse with his bullish oil bets), he would keep running his own personal hedge fund, the $3 billion Astenbeck Capital, which may have been Hall's Phibro bearish oil "hedge" and emerged largely unscathed from the 2014 commodity rout because "Hall curtailed bets and shifted to holding cash."

However, 8 months later, with oil crashing again, and without Phibro to serve as a natural hedge, suddenly Andy Hall is in trouble. Again.

It appears that after the great collapse of 2014, the oil trading "god" refused to learn from his mistakes, and was convinced that oil would promptly rebound up to its historic levels. His bullishness was evident in his latest letter to investors (attached below) in which we found that both his long-term oil price outlook...

The U.S. shale oil resources which are profitable at $65 WTI simply are not large enough to offset the declining production in these other areas that will result from oil being at that level. At $65 WTI, the economically recoverable oil resource of the lower 48 states in the U.S. is about 70 billion barrels of oil. This would support production of between 9 and 9.5 million bpd – about today’s level. To grow production meaningfully would require prices closer to $80. (Interestingly though, prices much higher than $80 do not significantly increase the economically recoverable resource.)

 

In summary, global oil prices will not be capped by the average cost of producing U.S. shale oil. U.S. shale oil production costs lie along a spectrum and while the best producers can make adequate returns at $65 WTI many others cannot. Furthermore, in the longer term a significant proportion of non-U.S. shale oil production require prices higher than $65 WTI to sustain investment. Finally, U.S. shale oil producers cannot produce enough oil at $65 to offset the production decline that would occur elsewhere in the world over time at that price.

... as well as short-term...

The second half of the year will see a strong seasonal uptick in global oil demand. Oil demand in Q3 and Q4 of 2015 should be some 1.7 and 2.9 million bpd higher respectively than in Q2. Meanwhile year over year U.S. production growth has slowed and production is now starting to decline sequentially. It will continue to decline through the balance of the year (barring significantly higher prices). Non-OPEC production growth elsewhere in the world will also slow through the balance of 2015. By December of 2015 year over year non - OPEC production growth will be a negative 1.7 million bpd compared to a positive 2.7 million bpd in December of 2014.

 

With global oil consumption rising through the second half of the year at the same time as non-OPEC supply growth is stalling and with OPEC essentially at full capacity, the call on OPEC production will exceed their ability to meet it. This will result in falling global oil inventories during the balance of 2015 and in 2016.

 

Meanwhile, Saudi Arabia is fighting a proxy war with Iran in neighboring Yemen. It is also facing an existential threat from ISIS which is endeavoring to stir up sectarian unrest in the oil producing east of the country – home to most of Saudi Arabia’s large Shiite minority. Much of the rest of MENA is in turmoil. It’s not unreasonable to say that the geopolitical risks in the major oil exporting region have  seldom been higher. Yet oil prices currently have little or no risk premium and are - furthermore - below the longer run marginal cost of production. Because of this and given that the underlying fundamentals continue to improve, price risks are skewed to the upside in our view.

... were quite bullish. They have also been, so far, dead wrong. And as Reuters reports, after two consecutive months of 3% losses in May and June at which point he was up just 2% for the year, July was by far the cruelest month in history for the oil trader, a month in which he suffered a whopping 17% loss. To wit:

Oil trader Andy Hall's hedge fund lost about 17 percent in July after failing to anticipate sliding crude prices as U.S. inventories piled up, a letter to its investors showed on Thursday.

 

The monthly loss was the second largest in the history of his Connecticut-based Astenbeck Capital Management firm, performance data accompanying the letter showed. The decline cut total assets under management at Astenbeck to about $2.8 billion, down about $500 million from June.

So after being up just barely up for the year in June and suddenly down 15% for 2015 a month later, having lost half a billion in just one month, it is a virtual certainty that the redemption requests are coming in. Worse, with Hall no longer having any hedges to cushion the ongoing oil crash (and in fact, it appears he is levered to the upside), his fund may be margin called to death soon enough even in the absence of major redemptions.

Which begs the questiton: will Hall no longer be seen as an oil trading "god" if Astenbeck is promptly shut down, and the "god" blows up twice in less than a year? Perhaps instead of "god", a more appropriate animalistic comparable is "pony" with an undiversified bag of tricks.

His June letter to investors is below.

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johngaltfla's picture

Man, that's the definition of "plunger rape" ...

Save_America1st's picture

I didn't read this at all...

that chick looks smokin' hot! :-)

 

okay, I'll read it now... 

okay, I read it...hmmm...I guess he didn't get the Iran deal memo before his newsletter went out, ay?  Ain't that a bitch.

That chick still looks smokin' hot. 

Four chan's picture

all it takes is money for todays woman.

JohninMK's picture

The shape of things to come.

Hold onto your hats folks.

Rainman's picture

'  My luck is so bad that if I bought a cemetery people would stop dying '

                       ~ Dangerfield

cnmcdee's picture

The first rule to the Shemitah - you do not bet against the Shemitah..

Save_America1st's picture

it's right around the corner.  With all the hype about it I gotta say I'm pretty intrigued and interested to see if it'll happen or not.  Should be interesting. 

And even if it doesn't happen then the way they say, who knows if it doesn't end up happening later on down the line by the end of this year or sometime in 2016? 

I won't buck the odds.  Get secure and stay on the sidelines w/ some cold beers and get ready for the fireworks. 

TheAntiProgressive's picture

Fuck the losses, who cares, the bitch, is she wifey 2 or 3?  She ain't gonna be smilin ear to ear when the cash flow dries up.  If dat his daughter I got a video for her to star in.....  He can watch.

I Eat Your Dingos's picture

He shoulda have a plunge protection team covering his godlike ass

sun tzu's picture

Enough redemptions and he will have to unwind his entire $2B long oil position. That could cause panic selling and a real bottom in oil

Winston Churchill's picture

Bet she has already filed for divorce.

redd_green's picture

Mmm wonder if she does p*rn.

Dazman's picture

You guys are fucked up.

But yeah I'd hit it too. On the bid ... $40 even for a handjob. She'll be able to buy a barrell of oil soon.

Squid Viscous's picture

maybe his wife will get a bigger cock now...

bluskyes's picture

In that case, I could help her transition to a simpler life, without the trappings of large bank accounts.

Handful of Dust's picture

Rumor has it he was seen checking out those box houses in SF as part of his downsizing plan. Push two of those boxes togther and he'll live in style out there with a double-wide crate container house.

 

For sure, it'll impress his investors. Esp the SF part. So cool and he's bald already so pretty hip, eh.

Carpenter1's picture

And people give this clown billions of their money...

indygo55's picture

Carpenter,

That's because people, you know, are stoopid.

 

Perseus son of Zeus's picture

Andy Hall is NOT 'God'!

pndr4495's picture

He may not be Andy Hall any longer either.

JenkinsLane's picture

Hall will do fine financially, it's his 'investors' who will have gotten the shaft. 

indygo55's picture

His 2/20 for one year, one fucking year, give me like 1% of that and I'd be so outta there.

 

 

i_call_you_my_base's picture

Rational investing is not possible in this environment. It doesn't matter who you are.

bamawatson's picture

letter was hilarious. reminds me of pari mutual horse/dog tracks; sounds like the no-lifed-loser tout explaining why the bet you funded, at his urging, failed. thanks for the laugh

new game's picture

easy come easy go, i'm sure he is still farting in silk

highandwired's picture

everyone's time comes eventually

 

"you win a while

and then it's done

your little winning streak..."  Leonard Cohen

Cyberg's picture

 

 

" nothing...succeeds like success..."  anon

Bill of Rights's picture

$2.8 billion huh poor prick...

JC-BI's picture
JC-BI (not verified) Aug 6, 2015 5:48 PM

Are people actually waking up to the "Fossil Oil is running out" scam?

https://biblicisminstitute.wordpress.com/2014/07/17/puzzled-scientists/

buzzsaw99's picture

don't worry about hall, he got plenty.

It's easy to grin

when your ship comes in...

and you've got the stock market beat.

But the man worthwhile

is the man who can smile...

when his shorts are too tight in the seat

[/judge smails]

 

Barney08's picture

That is one guy who Bought the f Ing dip. What a dip shit.

arbwhore's picture

The market makes fools of us all.

QQQBall's picture

She married him for good looks?

She married him for his money?

miki's picture

this bonehead was never the "oil trading god" try the late Marc Rich

Handful of Dust's picture

"His" loses are really his investor's loses. I suspect he still collects his generous commissions and fat fees and never misses a 7-course dinner with the wife ... or significant other.

Amish Hacker's picture

The scary thing is that those previous market calls sounded so logical, so well-reasoned at the time, like the wise words of an expert. The muppets were thrilled to have their assets under his management. Now, not so much.

Peak Finance's picture

So, we point and laugh at a lot of these guys, but honestly I expected the same thing. 

After the 10,000,000th  "Peak Cheap Oil" article on every finance site all over the internet, total lies about fundementals from all sides, unknown backdoor deals, and the quick rebound in prices from the last two plunges, who really should have known any better?  (other then well of course he should have been hedged, but maybe he was, honestly my hedges are not working out so well either) 

I am surprised this oil plunge lasted as long as it did, and still amazed at the low prices.  I am really very long oil here. 

free's picture

So what's the trade here if I want to go long?

Herdee's picture

"Even experienced Dutch smokers know when to put down the pipe".

bahaar's picture

It could be that oil was over-bought/over-valued.  Oil traders are all drowning in stored oil.  However isn't it true that (1)It's difficult to replace oil as an enregy source (2)There's limited supply of easily extractable sweet crude (3) MENA has become very unstable.  Shouldn't these act as counterpoints to Global deflation?

robertocarlos's picture

His daughter is smoking hot!

77steel's picture

Maybe he could be the back up to Hall & Oates.