- Pierre Andurand's hedge fund lost 8% in January.
- The oil-focused hedge fund was on the wrong side of a trade based on IMO 2020.
- Meanwhile, Saudi Arabia could be looking to cut its oil ties with Russia.
Pierre Andurand is considered to be among the world’s most notable oil traders and his hedge fund Andurand Capital Management lost 8% in January alone from its exposure to the commodity, sources told the Financial Times.
Losses Piling Up
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Andurand’s hedge fund is one of the few of its kind in the world to specialize in oil. According to FT, Andurand’s hedge fund ended in the red in 2018 and 2019. This marks a reversal of prior years when his fund gained 38% in 2014 which earned it a spot in the world’s top-performing funds at the time. In 2016 the fund earned a 22% return.
The London-based hedge fund made its fame by profiting on oil trades, especially during peaks of volatility. But in recent months the volatility could be too much to handle after oil prices soared to nearly $70 a barrel in reaction to the targeted killing of Iranian commander Qassem Soleimani. Fast forward to late February and oil is seeing nothing but selling pressure as the coronavirus outbreak is notably impacting demand for oil.
Wrong Side Of A Trade
The hedge fund took a position that diesel prices would move higher due to the implementation of a new shipping emission rule called IMO 2020. The trade also assumed that high-sulphur fuel oil would fall in value.
However, the thesis didn’t play out for two main reasons. First, refiners were able to blend lower-sulphur fuel mixes to boost supplies, according to FT. Second, refiners also produced less of this type of oil which prompted a rush in demand.
The Latest Oil Developments
A major dynamic in the oil market appears to be underway as Saudi Arabia is considering an end to its production alliance with Russia, sources told The Wall Street Journal. Saudi Arabia could find allies in its quest with fellow OPEC members, including Kuwait and the United Arab Emirates.
The three nations account for more than half of OPEC’s total production capacity and the publication’s sources are saying they are holding talks to discuss a split with Russia. This would mark an end to the official relationship which dates back to late 2016 and would further weaken OPEC’s ability to dictate oil prices.
OPEC members are scheduled to convene in Vienna in early March where an agreement to further cut oil shipments is likely to be finalized.