Astenbeck Capital Management chief executive Andy Hall said that while bulking up on bullish trades a month ago may have been premature, he's still confident that the market will see stronger prices relatively soon.
"With hindsight we were too quick to add to bullish bets in oil although timing the exact bottom of the market is virtually impossible," Hall, whose $3.1 billion fund is flat for the year so far, wrote in an April 1 letter to investors reviewed by CNBC. "It may take a little longer for low prices to work their magic but…there is plenty of evidence that both supply and demand are responding meaningfully" to the 50 percent-plus downturn in crude prices since last summer.
Hall had written in an early-March letter that Astenbeck had closed out its bearish bets—at a considerable profit, he noted— and started adding to their bullish ones.
Expanding on his current reasoning, Hall wrote in the April 1 investor note that U.S. crude oil inventories "should hit a peak in April before declining through the summer." He added that inventory pileups are not occurring on the same scale in key producer nations overseas, and that the "much ballyhooed armada of oil tankers" purportedly being used as a cheaper form of crude storage "has yet to materialize."
Meanwhile, the most recent Baker Hughes report, which covered the week through April 2, indicated that the U.S. rig count dropped once again, leaving it down more than 45 percent since its levels a year ago. And within the last day, the crude-market research company Genscape indicated that inventories at Cushing were leveling off, according to one trader (Genscape does not release its reports to the public and declined comment).
Still, many analysts and traders who focus on crude remain quite bearish in the short term—with some, including Andurand Capital founder Pierre Andurand, whose fund successfully called the downturn in crude last year, speculating on a likely bottom in the $20 range.
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Hall has been arguing for some time now that longer-term, hard-to-drill oil in deep water and other inhospitable terrains will require higher oil prices—a notion that the futures market, which is pricing crude substantially higher than its levels of $51 and $57 in West Texas Intermediate and Brent crude respectively, appears to be pricing in.
In sum, he wrote, "the secular trends noted above together with the strong seasonal pickup in [second half] demand should mean much stronger prices down the road…so while inventories will rise for a few more months they will be falling rapidly as we enter 2016."
In midday trading Monday, crude was up more than 5 percent in the U.S. markets and more than 5 percent in the benchmark Brent market.
