Andurand Stays Bullish on Oil, Predicting ‘Hefty’ Drop in Supply

(Bloomberg) -- Pierre Andurand, the hedge fund manager who foresaw oil’s plunge in 2014, says he expects a “hefty" decline in global crude stockpiles next year that should drive prices higher.

Oil demand should start accelerating by year’s end, and outside of Saudi Arabia the prospect for production growth among OPEC members looks bleak, Andurand said in a monthly investor letter obtained by Bloomberg News. His London-based Andurand Commodities Master Fund managed $1.2 billion in August, according to the letter.

Oil prices have swung up and down this month following an August rally spurred by speculation that Russia and the Organization of Petroleum Exporting Countries would move to stabilize the market. The countries have fueled the volatility in recent weeks, Andurand said, as they talked of freezing output even while boosting production to new highs.

“We continue to forecast a large output contraction down the road with decline rates accelerating at these low prices," Andurand, the firm’s chief investment officer, wrote in the letter. “While assuming healthy OPEC growth going forward, our conservative supply and demand balance continues to point towards hefty stock draws during the second half of the year."

Patiently Waiting

The fund “remains bullish as we patiently wait for our investment thesis to play out," he said. “Once we have run through the global excess inventory, onshore visible inventories will draw and oil prices will move higher."

The Commodities Master Fund gained 38 percent in 2014, when oil prices began a two-year slide. In August, the fund gained 4.2 percent, bringing annual returns to 8.3 percent, according to the letter. The hedge fund industry as a whole gained 1 percent in August and is up 2.2 percent this year, according to data compiled by Bloomberg.

Investment in new oil supplies is drying up, Andurand warned, thanks to low prices and climate-change worries that are fueling a push toward renewable energy.

“We see 2017-2020 as still having the potential for much higher prices," the money manager said. “After 2020, there is a high risk that electric vehicle penetration will change the oil market forever."