A trio of specialist energy hedge fund managers in London is chalking up big gains after betting on a plunge in the oil price, which has been hammered by the Saudi-Russia price war just as demand collapsed due to the coronavirus pandemic.
Among the winners are Doug King, head of RCMA’s Merchant Commodity Fund, Pierre Andurand, one of the world’s best-known oil traders, and Per Lekander at Lansdowne Partners.
All three — among the last remaining hedge fund speculators focusing on these markets — have made strong returns as the price of oil has tumbled, down more than 60 per cent since the turn of the year. On Wednesday Brent crude sank below $25 a barrel for the first time in 17 years.
Traders and analysts warn that oil could have further to fall, even after the price was cut in half this month. Predictions are growing that crude could soon trade in the teens or lower as the fallout from the spread of the virus shakes the world economy. Citi this week cut its forecast for Brent to just $17 a barrel in the second quarter.
Mr King, whose $165m fund came to prominence in 2014 by calling the last oil crash, has gained more than 25 per cent year to date by betting against gasoline, which has fallen even faster than crude in recent weeks.
“It is a dreadful situation that we’re not just trading, but living through ourselves,” he said. “But it’s my job to protect investor capital, and we made a call early on that if lockdowns started in the US it would be massive, as it is responsible for around 40 per cent of global gasoline demand.”
Wholesale gasoline in New York, known as RBOB, has dropped almost 60 per cent in March to 64 cents a gallon.
Mr Andurand, who runs the world’s largest remaining pure oil fund, lost around 8 per cent in January after being on the wrong side of a niche shipping fuel trade, the Financial Times reported last month. But he has since more than recouped those losses by betting aggressively against the crude price, according to two people familiar with the fund.
One of those people said the main Andurand Capital fund is up more than 50 per cent so far this month, while a separate fund with wider risk limits more than doubled as the oil price slide accelerated. A spokesperson for the firm, which managed about $1bn of assets in total early last year, declined to comment.
Mr Andurand said last week on Twitter that crude demand could fall by an unprecedented 8m barrels a day or more in the second quarter — the equivalent of almost 10 per cent of global consumption — as cities across Europe and North America go in to lockdown.
Mr Lekander of Lansdowne Partners, who manages around $1bn and focuses on renewable energy, is up 6 per cent this year following big gains in March. He has been backing wind turbine manufacturers and other greener forms of energy generation while betting against fossil fuel companies. Both groups have been caught up in the market turmoil, but oil companies have fallen far harder, leaving him up overall.
A spokesperson for Landsdowne declined to comment.
A small part of the fund’s gain has also come from Mr Lekander’s bets against the EU carbon emissions market. In 2017 bets on rising carbon prices helped his fund to a 27 per cent gain.
The oil price rout may not last for much longer, said Mr King at the Merchant Commodity Fund.
“While it feels like a one-way bet at the moment, the devastation in the world today is just too high for this level of volatility to be allowed to continue indefinitely. The oil crash is unhelpful for the US and other economies,” he said.
“Mass job losses in Texas will not be tolerated for long, so political risks are mounting for the Saudis,” he added.