Even after his Andurand Commodities Fund lost about 12 percent through March as oil prices linger around $50 a barrel, he’s still betting that slowing Middle East production and declining U.S. fuel inventories show prices are headed higher, according to a letter to investors obtained by Bloomberg News.
“While the price action year-to-date has proven to be extremely frustrating, our bullish outlook for oil prices has not changed,” Andurand wrote. “We maintain the view that front month oil prices will reach new highs over the next few months as fundamentals improve considerably going into the summer.”
Andurand’s $1.4 billion fund grew 22 percent last year as he successfully predicted both the early slide in prices and crude’s subsequent recovery. This year, crude has been “stuck in a trendless and choppy market” amid concerns about rising U.S. supplies, he said in the letter. Still, he pointed to Saudi Arabia’s output cuts, a fall in crude stored offshore of Iran and declines to stockpiles of U.S. refined products as signs that prices will soon rise.
Oil rebounded on Tuesday after falling six days amid projections that U.S. crude inventories dropped for a third week.
Surging U.S. shale drilling may add 800,000 barrels a day of production this year, but that will be outstripped by rising demand and declines elsewhere in the world, Andurand said.
“U.S. shale production would have to grow more for the market to offset demand growth and continuous supply declines,” he wrote. Such a ramp-up “will not happen without a sharp escalation in costs and therefore higher oil prices. Service costs have already been ratcheting up over the last six months. We expect cost inflation to continue and intensify.”