One week ago we asked - rhetorically - "Why OPEC Is Colluding With Hedge Funds." As readers will recall, what we noted is that as part of OPEC's recent decision-making process, it had suddenly gotten very cose with the same "speculator" traders it had reviled and mocked for so many years:
Mark Couling, head of crude oil at Vitol, the world’s biggest independent oil trading company, was invited to Vienna by the Saudi delegation, according to people with knowledge of the talks. Pierre Andurand, who runs the $1.5bn Andurand Capital fund, one of the world’s biggest oil hedge funds, was also invited, alongside at least one trader from Russian independent oil company, Lukoil.
Mr Couling and Mr Andurand attended a meeting with the Saudi delegation on Tuesday morning, before the kingdom’s oil minister Khalid al Falih arrived in Vienna, people familiar with the meeting said. A trader from Litasco, Lukoil’s trading arm, also attended, they said.
And, perhaps not surprisingly, in 2016, the permabullish oil trader generated a 22% return, in no small part courtesy of his "behind the scenes" discussions with OPEC.
Alas, 2017 has not been kind to the former Goldman trader, and as the WSJ reports, Andurand, "one of the world’s best-known oil traders" suffered a major loss in just the first two months of 2017 because of wrong-way bets on crude. To wit: Andurand, who manages about $1.5 billion for the Andurand Commodities Fund, lost 8.5%, or approximately $130 million, in the first two months of this year. The loss makes his fund one of the hedge-fund industry’s worst-performers in 2017. It also makes him the leading contender for "the next Andy Hall" prize, and close runner up in the "i am just a levered long bet on oil" category.
But perhaps what is most interesting is that in January and February oil did not crash: it mostly traded sideways; it only tumbled in the first days of March, so we dread to inquire just how badly Andurand is doing in the current month.
Some other details from the WSJ's Laurence Fletcher, who adds that "like many funds, his has been too positive of late, recently forecasting oil would hit $70 a barrel early this year."
So far he has been far off the mark, as on Tursday WTI tumbled for the 7th consecutive day, trading at $47.50, after Saudi Arabia reported that it had boosted its February oil production by over 200kbps to over 10 million barrels.
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, we wonder at what point Andurand will get the proverbial tap on the shoulder: as the WSJ concludes his "performance figures don't take account of the latest price moves, so if he was positioned for rising prices he is likely to have suffered further losses." Make that "guaranteed."