Andy Hall - known as the God of Crude Oil Trading to some of his peers - has, according to Bloomberg, built his success on a simple creed: Everyone who disagrees with him is wrong. He was one of the few traders who anticipated both the run-up in and the eventual crash of oil prices in 2008. Hall has made billions for the companies for which he’s traded by placing one aggressive bet after another; and now, he is all-in again. Hall is going all in on a bet that the shale-oil boom will play out far sooner than many analysts expect, resulting in a steady increase in prices to as much as $150 a barrel in five years or less. As one industry CEO warned, "anybody who bets against Andy Hall might be making a poor bet."
“When you believe something, facts become inconvenient obstacles,” Hall wrote in April, taking issue with an analyst who predicted a shale renaissance could result in $75-a-barrel oil over the next five years.
Hall is going all in on a bet that the shale-oil boom will play out far sooner than many analysts expect, resulting in a steady increase in prices to as much as $150 a barrel in five years or less.
Investing ever-larger sums of his own money, he’s buying contracts for so-called long-dated oil, to be delivered as far out as 2019, according to interviews with two dozen current and former employees and advisers who are familiar with Hall’s trading but aren’t authorized to speak on the record. To attract buyers, the sellers of these long-dated contracts -- typically shale companies that have financed the boom with mounds of debt -- need to offer them at a discount to existing prices.
...he digs deep, delving into the minutiae of how Texas discloses oil production, the tendency of some shale wells to play out quickly and the degree to which the boom has relied on debt. The simplest of his reasons, though, is that producers have already drilled in many of the best areas, or sweet spots. Hall predicts that growth in shale output will begin to moderate this year and U.S. production will peak as soon as 2016.
“Once those areas have been drilled out, operators will have to move to more-marginal locations and well productivity will fall,” Hall wrote in March. “Far from continuing to grow, production will start to decline.”
“We haven’t scratched the surface,” Hall’s former mentor O’Malley says. “There are massive additional shale fields in the United States. Technology does tend to move forward.”
Predictions of $75 oil, espoused by Citigroup oil analyst Edward Morse in a Barron’s story in March, really bug him, according to those who know his thinking.
“We are not sure what supports his conviction,” Hall wrote of the analyst’s theories in his June newsletter, although he didn’t identify Morse by name. “It is apparently not facts or analysis.”
The shale revolution faces political, environmental and technical hurdles in other parts of the world that will stall its rollout, Hall wrote. Morse, who also correctly predicted the sharp rise in crude prices in the past decade, says Hall has let his admiration of peak oil theorists cloud his judgment.
“It took a long time for believers in the Cold War to admit it was dead. So, too, is it taking a long time for peak oil believers to admit that it is dead,” Morse says.
So far this year, he appears to be getting confirmation...
So far this year, there are signs that he may be on the right track. In North Dakota’s Bakken and Texas’ Eagle Ford formations, which have accounted for almost all of the jump in U.S. output, the combined year-over-year growth in production in July fell below 30 percent for the first time since February 2010.
Two central questions about technology and shale will likely determine the outcome for Hall: how many wells producers will be able to drill in a finite amount of land that sits atop oil-bearing layers of rock and whether the U.S. renaissance will be repeatable abroad. Hall is betting no on both counts. Morse, and many in the energy world, are betting yes.
Timing is everything...
“He’s a phenomenal trader,” says David Neuhauser, a money manager at Livermore Partners who has followed Hall’s progress as an Occidental shareholder. “I believe he’s right about long-term prices; we’re in the same camp. What I don’t know is how long it will take for the market to catch up.”
* * *
Russia would sure be happy itf Andy Long is right... USA not so much... perhaps that is the crucial factor in this manipulated market that overpowers everything?