08 October 2016, New York — OPEC is back in the business of influencing oil prices as Saudi Arabia works with Russia and Iran to limit output, and only “a brave person” would bet against this, oil bull Andy Hall said in his latest investor letter.
The hedge fund manager is up nearly 18 percent for the year at his $2.5 billion Astenbeck Capital Management in Southport, Connecticut, after his fund rose 6 percent in September as oil rallied.
With the Organization of the Petroleum Exporting Countries now looking to limit output for the first time since 2008, the cartel can no longer be ignored, he said in Astenbeck’s October investor letter, seen by Reuters on Friday.
OPEC declined to cut output two years ago after oil breached $100 a barrel, instead letting the biggest oil market collapse in a generation happen as the price plunged.
“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, adding that this included Saudi arch rival Iran. “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 settled down 1 percent on Friday after hitting June highs above $50 this week. Prior to that, they jumped as much as 15 percent over a week after OPEC announced its planned cuts on Sept. 28.
Still, the market is trading at just half of the mid-2014 high above $100.
Astenbeck did not return an email seeking comment.
OPEC hopes to bring its output to 32.5 million to 33 million barrels per day, cutting about 700,000 bpd from a global glut estimated by analysts at 1.0 million to 1.5 million bpd. 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 maxing out production whenever possible.
“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.
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,” he said.
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 percent loss last year, his worst, by underestimating the potent supply from U.S. shale oil.
*Barani Krishnan; Editing – Jeffrey Benkoe & Cynthia Osterman – Reuters