Big Picture ... Market Perspectives 9/1/16


The Big Picture ... Market Perspectives

By Bryan Rich 

September 1, 2016, 2:00pm EST 


https://staticapp.icpsc.com/icp/loadimage.php/mogile/1014329/89450b52c102565f481ecfe4550f7cc5/image/pngLast month, this time, the famed oil trader Andy Hall (and oil bull) was dealing with a sub $40 oil market again.  And he was again explaining losses to investors in his multi-billion hedge fund.

A guy that has made a career, and hundreds of millions of dollar in personal wealth, picking tops and bottoms in oil, had had entered 2016 coming off his worst year ever.  And 2016 started even worse.  

I've talked about the oil price bust extensively, at the depths of the decline in January and February.  While most were glorifying the benefits of a few extra bucks on the pockets of consumers from low gas prices, we walked through the ugly outcome of persistently low oil prices.  It would be another global financial crisis, as failing energy companies and defaulting oil producing countries would lead to crush banks and the dominos would fall from there.  Unfortunately, the central banks don't have the ammunition to pull the word back from the edge of disaster for a second time.

With that, central banks stepped in with more easing in the face of the oil price threat earlier this year, and oil bounced sharply.     

Hall's fund bounced sharply too, running up nearly 25% for the year by the end of June.  But he gave a lot it back by the time July ended.  And now oil is closer to $40 again, than $50.  Thanks to a report yesterday that oil supplies were bigger than expected, the price of crude has fallen 10% since Friday of last week

Hall was the Citigroup oil trader who made billions of dollars for the bank energy trading arm, Phibro, in the early-to-mid 2000s.  He was one of the first to load up on oil futures in 2002, when oil was sub-$30, on the thesis that a boom in demand was coming from China.

He reportedly made $800 million in profits for Citi in 2005 from his original bullish bet.  He then made over $1 billion in 2008 for the bank, as oil prices soared to $147 a barrel and then abruptly crashed.  He profited handsomely from both sides, earning a payout from Citi of more than $100 million. 

So he's a guy that has been very right about turning points, and big trends.  And he's been pounding the table for much higher oil prices.  He thinks oil prices are in for a "violent reversal" (higher). With an important OPEC meeting scheduled for later this month, Hall, in a past investor letter, reminded people how powerful an OPEC policy shift can be.  In 1986, the mere hint of an OPEC policy move sent oil up 50% in just 24 hours.  


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