🔺 What to do when markets are at an all-time high? Find smart bargains, like these.See Undervalued Shares

Oil fund manager Andurand sees big price swings after OPEC decision

Published 03/12/2014, 18:24
Updated 03/12/2014, 18:30
© Reuters. Pump Jacks are seen at sunrise near Bakersfield

By David Sheppard

LONDON (Reuters) - Oil prices are set for wild swings after OPEC's decision to let the market find its level, says the hedge fund manager famous for calling the 2008 oil price spike and crash, adding that U.S. producers are set to feel pain.

Pierre Andurand, whose $350 million fund made an 18 percent return last month by betting on the oil price falling, said Saudi Arabia was no longer trying to control supplies in the face of a wave of U.S. shale oil output.

"The fact Saudi is not going to be the marginal producer means more volatility," Andurand, of London-based Andurand Capital Management, said. "And that means bigger moves for traders to take advantage of."

OPEC, led by its biggest producer Saudi Arabia, decided in Vienna last week to defend its market share rather than cutting production to defend prices, in a bid to force higher-cost U.S. shale producers to slow or cut output.

The 37-year-old fund manager's previous fund BlueGold returned more than 200 percent in 2008 by calling the spike - and subsequent crash - in oil prices that year. The fund enjoyed two out of three positive years after that, before shutting at the end of 2011 as the co-founders went their separate ways.

Relaunched as Andurand Capital in 2013, the French fund manager said five weeks ago that oil prices could fall as low as $50 a barrel, a call that looks increasingly prescient.

Oil has fallen almost 40 percent from over $115 in June to a five-year low below $68 a barrel last week. [O/R]

While some forecasters say some U.S. shale producers may have to stop production if prices fall below $80 a barrel, those estimates have largely been revised lower. Many small producers have hedged their output at higher prices for 2015, and are finding ways to squeeze down costs.

"Prices might have to go down at a level between cash cost and marginal cost to slow production fast enough," Andurand said, adding market forces would always be slower to respond than agreed production cuts by OPEC.

Andurand believes that level will still be around $50 a barrel, before prices stabilise around $60 a barrel. Eventually a tighter market should spur a new rally.

© Reuters. Pump Jacks are seen at sunrise near Bakersfield

"There needs to be real pain in the oil market before the price can go back up, that means potential bankruptcies for high cost producers," Andurand said.

(Additional reporting by Simon Jessop and Nishant Kumar; editing by Susan Thomas)

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.