After losing money earlier this year on bets that oil prices would rise, Hall warned crude supply in 2018 could be more plentiful than he expected just a few weeks ago, according to the letter that was reviewed by Bloomberg News. In the medium term the market “still looks challenging,” he wrote.
“With the WTI forward curve back above $50, shale operators will be able to profitably hedge incremental production for 2018,” said Hall. “The fact that OPEC has had to talk about further extending its production cuts is ultimately a sign of weakness, not of strength.”
Hall, known to some in the industry as “God” after Citigroup Inc. revealed that he pocketed $100 million in a single year, said he would shut down his Astenbeck Master Commodities Fund II Ltd. and return cash to investors by Aug. 31. As one of the most renowned oil traders of the last three decades his views are still closely watched, even as he winds down his main fund.
Astenbeck representatives didn’t respond immediately to emails and phone calls seeking comment. The Southport, Connecticut-based company managed $1.4 billion at the end of last year, according to a Securities and Exchange Commission filing.
The firm’s flagship fund lost almost 30% in the first half of the year, a person with knowledge of the matter said earlier this month, asking not to be identified because the details are private. In the letter, Hall complained that it was nearly impossible to trade oil based on fundamental trends in supply and demand, leaving the market at the mercy of computer-based trading systems.
It has “become hard to risk capital on the price of oil with as much conviction as in the past,” he said.
There’s no clear view on how shale supply will respond to shifts in the market and therefore no consensus on a long-term price anchor for oil, Hall said.
“Oil price bulls argue that the shale oil business model is a flawed one and is unsustainable, at least at current prices,” he said. “Bears, on the other hand, say technology is allowing these companies to continuously drive costs lower as well as add to recoverable reserves.”