By October 7, 2016 Read More →

Accept it, OPEC ‘back in business’: Astenbeck’s Andy Hall

Andy Hall

Andy Hall says it is important to note that OPEC is planning to control its collective production. OPEC photo.

Andy Hall says many analysts initially downplayed OPEC’s Algiers meeting

By Barani Krishnan

NEW YORK, Oct 7 (Reuters) – OPEC is back in the business of determining oil prices as SaudiĀ Arabia works with Russia and arch rival Iran to achieve output cuts, and only “a brave person” bets against this, closely followed oil bull Andy Hall says in his latest investor letter.

Oil analysts were too quick to label the Organization of the Petroleum Exporting Countries dead when the cartel let the worst crude price crash in a generation happen two years ago by focusing on protecting individual market share, said Hall, who runs the $2.5 billion Astenbeck Capital Management fund.

It wasn’t surprising, therefore, that they were downplaying OPEC’s decision in Algiers, the Algerian capital, last week to finally cut production, Hall wrote in the October investor letter of Astenbeck, seen by Reuters on Friday.

“What is important is that Saudi Arabia and its GCC allies, Kuwait and the UAE, have agreed with their archnemesis Iran to cap production growth,” Hall said, referring to the Gulf Cooperation Council countries.

“Now Saudi Arabia has declared it wants higher prices and is working with the rest of OPEC – and quite possibly Russia – to achieve them by curbing production,” he said. “It’s a brave person who bets against this combination of factors.”

Hall’s remarks come as OPEC officials embark on an unusual flurry of meetings in the next six weeks to nail down details of the Algiers deal.

Oil prices dipped on Friday after hitting June highs earlier this week. They have jumped almost 15 per cent since OPEC announced its planned cuts on Sept. 28.

The entire crude futures complex has moved back above the key $50 per barrel mark and the forward curve is also in contango, with contracts for future delivery more expensive than spot, a sign of increased speculator confidence.

Still, the market is trading at just half of the mid-2014 high above $100.

Hall is best known for earning a $100 million trading bonus from Citigroup by correctly calling oil’s first move above $100 before the financial crisis. He has not done as well at Astenbeck, which he officially launched in 2009. He posted a 36 per cent loss last year, his worst, by underestimating the potent supply from U.S. shale oil.

This year so far, Astenbeck is up nearly 18 per cent after a 6 per cent gain in September. The fund did not immediately respond to a Reuters email seeking comment.

OPEC hopes to bring its output to 32.5 million to 33 million barrels per day, cutting about 700,000 b/d from a global glut estimated by analysts at 1.0 million to 1.5 million b/d. The amount that each member cuts would be decided at the group’s policy meeting in Vienna in Nov. 30, it said.

Many analysts are skeptical of OPEC’s pledge as it has been producing at record highs.

“Quibbling over whether Angola will honor a commitment to cut its production by a few tens of thousands of barrels per day is really not the issue,” Hall wrote, adding that the output of most OPEC members has possibly peaked in recent years.

Hall added that what mattered was the cartel saying it “was back in business … planning to once again control its collective production, which still accounts for a third of global oil production and the majority of oil exports.”

(Editing by Jeffrey Benkoe)

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