Trader Who Scored $100 Million Payday Bets Shale Is Dud
Andrew John Hall -- known as the God of Crude Oil Trading to some of his peers -- has built his success on a simple creed: Everyone who disagrees with him is wrong.
For most of the past 30 years, that has been a killer strategy. Like a poker player on an endless hot streak, Hall has made billions for the companies for which he’s traded by placing one aggressive bet after another. He was one of the few traders who anticipated both the run-up in and the eventual crash of oil prices in 2008.
Hall was so good that he bagged a $98 million payday in 2008, when he ran Citigroup Inc.’s Phibro LLC trading unit, and was up for about $100 million more in 2009.
In the end, Bloomberg Markets will report in its October 2014 issue, he couldn’t collect the 2009 payout from Citi because an anti–Wall Street backlash against the bank -- which had just received a $45 billion U.S. government bailout -- led regulators to block it. No such bonuses have awaited Hall of late. He’s racked up losses in two of the past three years.
His wager that oil prices would rise and rise has run headlong into an unanticipated energy revolution -- the frenetic push in the U.S. and elsewhere to wring crude out of shale. Shale drilling has boosted U.S. oil output to the highest level in 27 years; it helped the U.S. supply 84 percent of its energy demand last year. Oil prices, far from taking the upward trajectory Hall predicted, have been essentially unchanged since 2011.
Lost Touch?
For the 63-year-old Hall, who has used his wealth to build an extensive modern art collection, this has meant a sobering comedown. Assets under management at his Astenbeck Capital Management LLC hedge-fund firm fell to $3.4 billion in May, down from as much as $4.8 billion in January 2013. Astenbeck, based in Westport, Connecticut, fell 3.8 percent in 2011, posted a 3.4 percent gain in 2012 and slid another 8.3 percent in 2013, according to Astenbeck letters obtained by Bloomberg. This makes some wonder whether Hall has lost his touch.
“At one point, Phibro traders were the rulers of the world,” says Carl Larry, a former trader who publishes a newsletter on oil markets. “The best always learn how to adapt. Maybe it’s taking him longer to do that now. Or maybe his time has come.”
Hall, based on comments in his letters to investors, is unfazed by the losses and secure in his view that the price of oil is destined to rise. In those letters, he regularly mocks those who are convinced that a shale boom will mean long-term cheap, abundant energy.
‘Inconvenient Obstacles’
“When you believe something, facts become inconvenient obstacles,” Hall wrote in April, taking issue with an analyst who predicted a shale renaissance could result in $75-a-barrel oil over the next five years.
Hall is going all in on a bet that the shale-oil boom will play out far sooner than many analysts expect, resulting in a steady increase in prices to as much as $150 a barrel in five years or less.Previously on the Andy Hall Show:
Investing ever-larger sums of his own money, he’s buying contracts for so-called long-dated oil, to be delivered as far out as 2019, according to interviews with two dozen current and former employees and advisers who are familiar with Hall’s trading but aren’t authorized to speak on the record. To attract buyers, the sellers of these long-dated contracts -- typically shale companies that have financed the boom with mounds of debt -- need to offer them at a discount to existing prices.
Hall’s strategy -- which in a May letter he described as more akin to “loan-sharking” than market speculation -- has already shown some signs of success.
Futures Rise
In February, a futures contract for a barrel of December 2019 West Texas Intermediate benchmark crude was selling for $76. In July, those contracts were selling for $88. That means Hall could have made $12 a barrel by cashing out -- a 16 percent gain, according to those who understand his positions....MORE
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