The decision by legendary oil trader Andy Hall to close his main Astenbeck fund marks not just another commodity investor brought low by the crude price crash, but the capitulation of an ardent bull who helped define the era of $100 oil.
For more than a decade the British-born oil trader had bet long and bet big that crude prices could only go higher, earning him notoriety for a $100m payday during the financial crisis, the nickname “God” among rival traders, and a fortune he ploughed into an art collection that is valued in the hundreds of millions.
When the oil crash started in mid-2014, Mr Hall maintained his bullish view even as prices plummeted from $115 a barrel to below $30, arguing that the US shale revolution alone could not meet rising demand or offset declines at ageing oilfields.
But last month, with his fund recording double-digit losses, he finally threw in the towel, telling investors that prices would stay rangebound until at least 2020 and declaring “oil bulls have run out of runway”.
For a generation of oil traders who grew up in Mr Hall’s wake, his climbdown is the climax of a storied career, which mirrored many of the biggest trends in the oil trading industry, including its so-called “financialisation” as derivative traders took on a greater influence over the near 100m barrel a day physical market.
But his rivals do not see Mr Hall’s decision to shutter his flagship Astenbeck Master Commodities Fund II as a sign that investing in oil is dying out, despite him joining at least 10 commodity-focused funds that have closed in the past five years.
Instead, they see it as confirming the need for more nimble and nuanced trading strategies that have superseded the old mantra that buying commodities affords investors diversification from stocks and bonds.
“Institutional investors wanted a long-only exposure to oil and that’s what Andy Hall was responding to when he set up Astenbeck,” said Doug King of the $185m Merchant Commodity Fund, which leapt to prominence by returning 59 per cent betting against oil in 2014.
“That allowed him to get a chunky sum of assets under management, but since 2014 it’s been an incredibly difficult environment for that type of strategy.”
Others such as Gresham Investment Management, part of an old guard of “long-only” commodities specialists, have recognised the move towards more active management, launching two hedge funds that can take both bullish or bearish positions.
Olivier Jakob at consultancy Petromatrix said oil’s precipitous rise last decade, when raging Chinese demand helped propel crude to $147 a barrel, had favoured Mr Hall’s approach. But new tactics were required with crude fluctuating between $40 and $60 a barrel, torn between a level shale can grow at and Opec’s attempts to prop up the price.
“It’s harder to just sit on a position,” Mr Jakob said. “Often you need to turn quickly from bullish to bearish and back again.”
Pierre Andurand, arguably Mr Hall’s closest competitor in the world of billion-dollar plus oil funds, said that while traders need to be willing to bet in both directions, he did not think taking long-term positions was going to be completely consigned to the past.
“When I started my career [Andy Hall] was already a legend in the oil market, he was untouchable,” Mr Andurand said. “Maybe he thinks there won’t be many opportunities to make the money back, though personally I don’t think the market will stay rangebound for very long.”
While betting on a crude price recovery has lost the $1.1bn Andurand Capital fund around 15 per cent this year, according to people familiar with its performance, Mr Andurand thinks Mr Hall was perhaps too quick to give up on a rally.
He argues the impact of shale, electric cars and the ability of producers to meet fast-growing demand with $50 prices are all overstated. Oil bulls, it seems, are not yet extinct.
“I still think we’ll have a massive rally from now until 2020,” Mr Andurand said.
“We’ll see prices back above $100 a barrel.”