Bloomberg
London
Brent crude will continue its collapse to $60 a barrel by the end of the year and reach $50 in early 2015 as Opec stops balancing the global market, according to hedge fund manager Pierre Andurand.
Oil inventories will swell by 1mn to 2mn barrels a day in the first half of next year as Saudi Arabia and other Opec nations refrain from paring output to tackle a global glut, said the founder of Andurand Capital Management, who called the top of the oil market in 2008.
The trader anticipated lower prices before Opec’s gathering, according to a November 11 investor letter.
Brent futures tumbled to a five-year low of $67.53 a barrel in London on Monday following the decision by the Organisation of Petroleum Exporting Countries on November 27 to maintain production levels. Their resolution signals the group will test whether US shale producers are the first to reduce output, according to Andurand, who previously ran BlueGold Capital Management and worked at commodities trader Vitol SA.
“For now, there’s a clear green light that Saudis say prices have to go lower in order to slow down US production,” Andurand said yesterday during an interview in London. “Oil prices will probably have to go lower to bring non-Opec production down.”
US production expanded to 9.08mn barrels a day through November 21, the most in weekly records that started in January 1983, data from the Energy Information Administration show. Output will climb to 9.4mn next year, the most since 1972, it forecasts.
Brent lost 81 cents to $71.73 a barrel at 11:56 am local time on the London-based ICE Futures Europe exchange. West Texas Intermediate fell 88 cents to $68.12. Opec’s Gulf members signalled in the weeks leading to the meeting that they wouldn’t cede market share in response to rising production from outside the group, Andurand said.
“It would make no sense for them to cut, and then cut again the following year,” he said. “So they came to the conclusion that despite the fact they feel some pain, at least the core Opec members have a large amount of reserves that means they can live with lower prices for a much longer time.”
Oil-market volatility has caught out some hedge funds and other speculators in recent months. Money managers increased bullish bets on Brent in the week prior to the Opec meeting, according to ICE data.
Net long positions on Brent contracts rose by 7.9% to 65,973 contracts in the week to November 25, according to data published yesterday. Speculators also bet on higher prices just before Brent plunged below $80 for the first time in four years.
Andurand, 37, managed as much as $2.2bn from 2008 as co-founder of oil-focused commodity fund BlueGold Capital Management. It gained 209% on its main fund in 2008, but liquidated after losing 34% in 2011.
Oil prices will come under pressure early next year as surplus crude strains available storage capacity, steepening the discount, or contango, on prompt Brent contracts, Andurand said.
Crude futures will also slide as production costs decline amid excess capacity in the oil services sector, he said.
Brent prices will subsequently stabilise at $60 to $70 a barrel, Andurand said. If investment in production is significantly curtailed, “that might plant the seeds for the next bull run” during the coming two years, he said.
