Hedge funds bet on oil “triumphant return”
Hedge funds are once again optimistic about oil, betting that the pandemic and investor attention to the environment have seriously undermined companies’ ability to ramp up production.
Such supply constraints will push prices to multi-year highs and keep them there for two or more years, several hedge funds said..
According to eVestment, this view marks a reversal for hedge funds that have short-circuited the oil sector ahead of global shutdowns, resulting in energy-focused hedge funds growing 26.8% in 2020. With their dynamic strategies, hedge funds quickly spot new trends.
The global benchmark for Brent crude has jumped 59% since early November, when news of successful vaccines broke, after travel restrictions and COVID-19 lockdowns last year eroded fuel demand and plummeted oil prices. It hit a pre-pandemic level of around $ 60 a barrel last week.
Oil price in the USA for the same period by 54% to $ 57 per barrel «The vaccine should be widespread by summer by the holiday season, and I think things will go well.», – said David D. Tawil, Co-founder of New York-based hedge fund Maglan Capital, Acting CEO Centaurus Energy.
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Tawil predicts Brent prices will range from $ 70 to $ 80 per barrel by the end of 2021, and invests in independent oil and gas producers for the long term..
Hedge funds are upbeat despite the International Energy Agency’s January warning of a spike in new cases of coronavirus. The epidemiological situation is holding back oil demand this year, and the slow economic recovery will delay the full recovery of global energy demand until 2025.
Typically, oil producers ramp up production as prices rise, but green investors’ shift from fossil fuels to renewables and caution on the part of lenders keep them from reacting accordingly, hedge funds and other investors say..
The pace of recovery in the U.S., which is the world’s # 1 oil producer, is projected to be slow and will not exceed the 2019 record of 12.25 million barrels per day until 2023. Production in 2020 fell 6.4% to 11.47. million barrels per day.
The Organization of the Petroleum Exporting Countries (OPEC), which has also revised downward growth in demand, nevertheless still expects the cut in production to keep the market in deficit throughout 2021.
«In the next couple of years, we will see incredible oil prices, incredibly high», – said Tawil.
According to Rystad Energy, global oil and condensate production in December decreased by 8% compared to February 2020, the beginning of a widespread pandemic.
Production in North America decreased by 9.5% and in Europe by only 1% over the same period.
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Some banks predict that the United States, with the leading number of COVID-19 cases, will achieve herd immunity by July, significantly boosting oil demand, he said. Jean-Louis Le Mi, head of London-based hedge fund Westbeck Capital Management, which is a long combination of oil and stock futures.
«Oil companies will probably go back for the first time in a long time, he said. – We have all the prerequisites for an extraordinary bull market for oil in the next few years».
In the United States, hedge funds increased their holdings in Exxon Mobil Corp by 21,314 shares in the third quarter, the most recent US data compiled by Symmetric.io showed..
Over the same period, hedge funds added more shares of major US oil companies – 9,070 ConocoPhillips and 4,144 shares of Chevron Corp.
Short activity at BP PLC fell 16 million shares on February 4, but slightly increased at European oil company Royal Dutch Shell Plc – 1.9 million shares, according to Astec Analytics FIS..
Some investors remain skeptical about Canadian oil companies, one of the most carbon-intensive producers in the world, although they are recovering faster from the pandemic than US companies..
Current short positions rose in 10 of the 14 Canadian oil companies in the Toronto Energy Index in the second two weeks of January, according to reports reviewed by Reuters..
Shale production in the United States is not able to recover quickly, given the necessary capital and the presence of debts from producers, which helps to maintain oil prices, he believes Rafi Takhmazyan, Senior Portfolio Manager at Canoe Financial LP from Calgary.
The North American oilfield services sector, which producers rely on to drill new wells, has been hit hard, he said..
«They are deprived of the opportunity to grow, – Takhmazyan said. – The supply side is broken».