LONDON OPEC's plan to try to limit global oil production have served to reinforce renowned hedge fund manager Pierre Andurand's bullish stance on the prospects for crude prices.
Andurand, whose Andurand Capital fund manages $1.36 billion, shot to financial fame in 2008 by correctly predicting the spike and subsequent drop in the price of crude that year and he was right again last December when he forecast a drop to $25 in the first three months of this year.
Oil prices have risen by 70 percent since the Organization of the Petroleum Exporting Countries (OPEC), led by Saudi Arabia, first signaled in February that it might be willing to limit production to help to reduce a two-year-old surplus that has halved oil's value.
Andurand runs analysis on about 10,000 oil fields around the world and says that declining production by non-OPEC producers, such as the United States, and a gradual drop in the amount of oil in storage have persuaded him that this year's rally is here to stay.
"In 2014 the big opportunity was in prices going down and now the big opportunity is in prices going up. That’s the way I see it," Andurand told the Reuters Commodities Summit.
DETAIL A DISTRACTION?
OPEC, which supplies roughly a third of the world's oil, last month unveiled plans to limit production to between 32.5 million barrels and 33 million barrels per day (bpd), from closer to 33.4 million bpd at present.[OPEC/M]
The price of oil has risen to its highest in a year, but the rally has been tempered by uncertainty over how OPEC members will share the burden of a cut when there are likely to be exemptions for some countries.
Nigeria and Libya, for example, are struggling to make up for output lost to violence and civil unrest, while Iran is seeking to reclaim market share after this year's lifting of Western sanctions.
Andurand said no one should get "lost in the details" on how the cut will materialize.
"There will be a quota. They spoke about a range of 32.5-33 million bpd, with Libya, Nigeria and Iran allowed to go back up. If production from Libya goes up, say, then the other OPEC producers will have to cut production to make space," he said.
"It takes off a large wild card from the oil markets for 2017."
His view, however, contrasts with the expectations of some of the world's biggest oil trading companies, the heads of which told the Reuters Summit that they think there is unlikely to be any significant supply and demand rebalancing until well into 2017.
Andurand, whose clients include institutional investors such as pension funds, university endowment funds and large wealthy families, expects oil to reach $60 a barrel by the end of the year and $80 in 2017 -- a rally he says would have happened with or without OPEC.
"With the capex cuts (by oil producers) that we’ve seen and have carried on seeing ... we don’t see a wall of supply coming in 2017. We see the opposite," Andurand said.
"Even without an OPEC cut, the markets were getting better and we were going to go up further."
While benchmark crude oil futures have moved by as much as $5 in one day this year, 2016 is shaping up to be the least volatile in three years, making it tougher for investors to generate the kind of returns achieved in the past.
The swing between the high and low this year has been only $26, against a hefty $111 difference during the rollercoaster ride of 2008.
"As a hedge fund manager, you have to have an opinion and a position," Andurand said.
"You are always going to be judged by your last trade."
(Editing by David Goodman; Follow Reuters Summits on Twitter @Reuters_Summits)