Exclusive: Oil bull Hall's hedge fund makes first gain in five months

Thu Aug 2, 2012 9:00pm EDT

(Reuters) - Billionaire oil trader Andy Hall's hedge fund has made money for the first time since February, aided by a rebound in oil prices he pinned on tightening sanctions on Iran and stalling production growth from Brazil to North Dakota.

Astenbeck, the 61-year-old's Connecticut-based commodities fund, gained 4 percent in July, ending a string of monthly declines, according to data he shared with investors this week and obtained by Reuters.

But Hall's stubbornly bullish bet on oil prices has not always paid off and Astenbeck, which manages a total of $4.7 billion, is still down about 4 percent this year. His biggest slip was in May, which he called "mensis horribilis" or Latin for horrible month, when Astenbeck lost 14 percent.

In a letter to investors on Wednesday, he reavowed his bullish view by pointing to countries like Brazil and Russia, which are struggling to boost oil production -- and to the booming U.S. shale oil patch, where some producers have begun to pull back on a drilling spree due to stubbornly high costs.

"It is becoming increasingly clear that claims that the development of shale oil would inundate the world with large volumes of cheap oil were wide of the mark," Hall said in the letter, a copy of which was obtained by Reuters.

"There is oil to be extracted from these resources but it will require high prices to make it happen."

Earlier this week, Marathon Oil Corp (MRO.N) joined other major oil producers in North Dakota's Bakken fields like Continental Resources Inc (CLR.N) and Occidental Petroleum Corp (OXY.N) in reducing its rigs, although it also said that more efficient techniques would help sustain output elsewhere.

Hall said that there was little room for longer-dated crude oil prices to drop below $90 "given the economics of producing the marginal barrel of oil." U.S. crude oil futures are trading at between $88 and $90 a barrel for the next two years.

And costs pressures are not letting up, he said: "The results reported by oil service companies recently suggest that their business remains firm and that they still retain pricing power. Their gain is in part the oil producers' loss which suggests production costs are not going down."

PHIBRO INSIGHT

The first sign of Hall's turnaround came on the last day of June, when crude oil prices staged a dramatic surge of up to 9 percent. Since then, prices have gained about 5 percent more, bringing London's benchmark Brent crude to around $106 a barrel.

"It ain't over yet till the fat lady sings," Hall said in another letter to investors last month, also seen by Reuters, that listed a litany of reasons why oil would go higher.

Hall is also chief executive of Phibro Trading, a century-old commodities trading firm now owned by Occidental Petroleum Corp (OXY.N). Oxy controls 20 percent of Astenbeck's Westport, Connecticut-based management firm.

He became an oil market legend after earning a $100 million annual bonus as a Citigroup (C.N) trader for hugely profitable bets he made on crude in 2008, a year when oil surged to a record high of $147 a barrel.

Hall set up Astenbeck in 2008 after posting more than a decade of consecutive annual gains while at Phibro, then owned by Citi. His first ever annual loss at Astenbeck was last year, when the fund fell 4 percent.

DEMAND HOLDS UP

In the letter issued Wednesday, Hall said demand for oil was holding up relatively well, "given all the macro economic gloom while supply continues to surprise to the downside."

He cited the Western sanctions on Iranian oil which had brought output from the world's fourth largest crude exporter to its lowest level in 22 years.

Production outside of the Organization of the Petroleum Exporting Countries, was stalling or falling, with the exception of North America output, he said.

"Russia, the world's largest producer and exporter of oil has seen no growth in production in the past nine months. Brazil, a country meant to be a major contributor to supply growth through the balance of the decade, is struggling to maintain current production levels."

(Editing by Phil Berlowitz)

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