These Hedge Funds Gained When Oil Prices Went Sub-Zero

(Bloomberg) -- As oil lurched into an an unprecedented phase of unwanted crude and negative pricing, some hedge funds emerged from the havoc with decent gains.

West Texas Intermediate plunged below zero for the first time in history on Monday as the May contract neared expiration, leaving oil traders in a panic as they tried to avoid taking delivery of physical barrels. On Tuesday, the losses spread to next month’s contract, highlighting the oversupply in the market.

Here’s how some oil-trading hedge funds are faring after an extraordinary day:

Westbeck Capital Management

The firm’s Energy Opportunity Fund gained 8% on Monday, according to a person familiar with the matter. The fund, which gained 40% last year shorting U.S. shale companies, had turned its attention to oil storage filling up at various points around the world, particularly at the biggest U.S. hub in Cushing, Oklahoma.

The fund was already up 3.7% in the first quarter of this year after making 20.2% in March.

“A quite remarkable day for oil, but our strategy was to be short at the front, and long the back end of oil, so it was a positive day for the fund,” said Will Smith, Westbeck’s founding partner.

Merchant Commodity Fund

The $175 million fund benefited on Monday from being short nearby crude contracts and is up an estimated 33.3% this year, Chief Investment Officer Doug King said in an interview. The differential between the nearby and forward prices needs to widen to cover the costs of more expensive storage, such as on ships and rail cars, as cheap tanks are filled, he said.

“Yesterday was a huge shock,” London-based King said. “I thought it could go negative, it’s happened with gas. But did I think minus 40? Not a chance. That had some extreme positioning and people were obviously having to get out of their positions. There is no doubt that things will not be the same after this.”

The traditional supply and demand dynamic is broken, King said. “Production needs to stop now or we won’t have room for storage,” he said.

Arctic Blue Capital

London-based Arctic Blue, a commodity-trading adviser that invests in agriculture, precious metals and energy, is up 10% this year through Monday, says Chief Investment Officer Jean-Jacques Duhot. It’s gained from bullish investments in gold and short bets on oil, he said. Arctic Blue has $157 million in total assets.

“The only certainty of the moment is uncertainty,” Duhot said. “Yesterday was historical. And it’s going to have a psychological effect on other markets and players that don’t even trade oil. It’s like a cold shower for other participants.”

©2020 Bloomberg L.P.

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