Clouds are gathering over the outlook for the oil market as trade tensions and rising crude supply threaten to swamp demand growth.
However, some of the world’s most prominent energy investors are convinced the price will return to record highs at $150.
The escalating trade war between the United States and China threatens global growth.
The physical markets are already showing signs of strain as unwanted crude builds on ships and crushes prices for cargoes of oil.
Aside from that, interest rates around the world are rising and the dollar is strengthening, which means emerging market oil buyers are seeing their import bill growing almost daily.
Both OPEC and the International Energy Agency (IEA) warned about the risk of trade disputes to global demand growth in their most recent monthly market outlooks.
Funds have cut their bullish bets on Brent and U.S. crude futures and options to their lowest in almost a year.
Despite all this, prominent hedge funds such as Andurand Capital and Westbeck Capital are betting oil could skyrocket to $150 a barrel from around $75 presently.
The main driver is expected to be upcoming U.S. sanctions on Iran’s energy sector, which kick in in November.
“Our view is that by Nov. 4, we will have lost between 1.3 and 1.4 million barrels (output) a day. It is a very big number.
“That’s based on the view that the U.S. will allow few temporary exception waivers….ultimately.
“We could see losses from Iran exceed two million barrels a day,’’ Jean-Louis Le Mee, Chief Executive Officer of London-based Westbeck, said.
U.S. President, Donald Trump, in May walked away from a 2015 nuclear deal between world powers and Tehran that he said was one-sided in Iran’s favour.
Trump also blamed OPEC for the 45 per cent rise in oil prices over the last 12 months and, in June, exchanged sharp words with Iran on the subject.
Pierre Andurand, who predicted the rise and subsequent crash in the oil price in 2008, responded on Twitter by pointing out OPEC’s spare capacity was at its lowest ever.
He runs the $1.2 billion Andurand Commodities Fund.
“There is going to be a real issue,’’ he wrote, predicting prices above $150 per barrel within two years.
“We don’t sense a great deal of engagement yet from generalist investors.
“A few of them are starting to look at it now,’’ Will Smith, Westbeck Chief Investment Officer, said.
“This is going to catch everybody by surprise. Some of the specialists are bullish – including Pierre (Andurand), ourselves and Energy Aspects,’’ he said.
Andurand Capital declined to comment.
Taking a contrarian view can be costly. Even Andurand took a hit in 2017 when he expected the oil price to rally sharply and, instead, it was around the $50 mark.
Westbeck’s Energy Opportunity Fund is up 4.1 per cent in the year to July 13, showed an investor presentation shared with the media.
Andurand’s commodities fund is up 12 per cent in the first six months of 2018, according to data compiled by HSBC.
The oil options market shows that, for contracts from October 2018 to December 2020, traders and investors are holding more contracts to buy crude futures – or calls – at $100 a barrel than any other. ((ReutersNAN)
