May 27, 2022

Pierre Andurand: Oil Markets Are Worse Off Than Many Traders Realise


Julianne Geiger

Popular hedge-fund manager Pierre Andurand is cautioning that the oil markets are worse off than many traders believe, according to the Wall Street Journal.

When asked why oil prices aren’t higher than they are given the grave situation in Ukraine, one manager of a $1 billion hedge fund has a frightening answer: it’s because traders just haven’t realized just how bad things are yet.

Andurand compared what’s happening now with the Russia/Ukraine crisis to the ostrich effect that took place during the early stages of the Covid-19 crisis: no one wants to believe how bad things are.

Regardless of what some believe, though, Andurand, chief investment officer at Andurand Capital Management, is banking on crude oil prices staying high, or even rising higher.

But that hasn’t stopped Andurand from believing that there is still room to sanction Russian oil.

Assuming that Russia exports 6.5 million barrels of oil per day, 2 million make their way to China and will keep making its way to China—sanctions or no sanctions. That leaves 4.5 million barrels per day. But if Urals keeps selling at a massive discount, China may increase its purchases, up to an additional 1.5 million barrels per day. The remaining 3 million barrels per day that flows to countries that would likely adhere to sanctions, is what the market would be short. Gulf producers could increase oil production by 1.5 million barrels, Andurand estimates, leaving 1.5 million barrels per day to be made up with coordinated SPR releases.

Whether Gulf producers could make up that shortfall or not is debatable, however, with OPEC+ not fulfilling its pledges under its production cut agreement. Estimates are that the group is still underproducing by a significant margin, and the speculation is that that is precisely because it cannot produce more.

By Julianne Geiger for Oilprice.com

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