March 9, 2020 / 8:17 PM / a month ago

Exclusive: Trader Andurand goes short oil over coronavirus, after long-term bull bet

LONDON (Reuters) - Hedge fund manager Pierre Andurand began betting against oil three weeks ago due to the coronavirus outbreak, he told Reuters on Monday, reversing his multi-year bullish view.

“I spent a lot of time studying this virus ... In China they did a good job containing it,” said Andurand, the manager of Andurand Capital Management. “In Europe and the U.S., I’m very worried that the measures they take are not drastic enough to stop or slow the spread.”

“It is possible that we lose 10 million barrels per day of demand for six months or so,” he said. That would represent 10% of global demand.

Brent crude crashed 24% to around $34 per barrel on Monday after Saudi Arabia and Russia failed to agree a new pact to reduce supply and decided to pump at will in an already oversupplied market.

Andurand said he was working from his office in Malta, was not traveling and had told his London staff to work from home, aware that the epidemic was “potentially very serious from both a humanitarian perspective and that of current and future energy demand loss expectations”.

He said the bearish OPEC decision had surprised him.

“But then, maybe they are right ... what OPEC was trying to do in the last four years was doing the heavy lifting for U.S. oil producers. It is not a good long-term strategy.”

A Russian-Saudi pact to reduce output has helped to support oil prices since 2016, but also gave a boost to U.S. shale producers, who are much less efficient than other oil firms.

“I wouldn’t be surprised if oil fell to $10 per barrel in the next three months, although I’m not betting on it aggressively,” Andurand said.

“SELLOFF NOT OVER”

Andurand said his firm had been long crude in the first week of January before going flat because of negative price action, warm weather and lower-than-expected demand, finally moving to a short position.

He said that Saudi–Russian tensions, an extreme decline in travel and consumption related to the coronavirus epidemic and a potential global economic slowdown meant the selloff probably had some way to go.

“We ... went short about three weeks ago, mainly because of the impact of the coronavirus on oil demand. We believe this is far from being priced in the market, even today.”

The firm’s fund, the Andurand Commodities Fund, made net gains of 8.4% in the month to Mar. 6, bringing its year-to-date returns to 1.4%, according to a source familiar with the matter.

The Financial Times reported last month that Andurand Capital, which last year was managing $1 billion, lost 8% in January.

The paper said Andurand had racked up two consecutive years of losses in 2019 and 2018 as he bet on oil prices rising.

However, the Andurand Commodities Fund has a long history of positive performance, eking out modest gains of 2.2% in 2017 and making 22.1% in 2016 and 38.3% in 2014, according to data compiled by HSBC.

Andurand was previously Chief Investment Officer at BlueGold, a former global commodities hedge fund which at its peak managed over $2 billion, according to his website.

The fund generated 75.4% net between its inception date and Friday, according to the source familiar with the matter.

Reporting by Maiya Keidan; Editing by Kevin Liffey

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