Hedge fund manager Pierre Andurand says OPEC is still likely to agree on an output freeze this month and prompt a sharp rally in oil prices, despite disputes among its members.
The years-long supply glut that hammered oil prices is gone with no sign that production will grow next year, Andurand said in a note to investors obtained by Bloomberg News. The founder Andurand Capital Management, which oversees $1.4 billion in its main strategy, put the chance of an agreement by the Organization of Petroleum Exporting Countries at 70%.
“History has demonstrated that OPEC typically never reaches an agreement before the headlines," wrote Andurand, who won big by predicting the oil market’s downturn in 2014. “Unfortunately, the noise surrounding negotiations is often misinterpreted by the media and most analysts who perceive bargaining techniques as a sign of a deal falling apart."
Oil retreated the past three weeks amid skepticism about OPEC’s ability to implement a freeze at its Nov. 30 meeting in Vienna. Prices closed at an eight-week low of $43.32/bbl on Monday after Iran said it had increased production at three fields. Failure to reach a deal may drive down prices further amid “relentless global supply growth,” the International Energy Agency said Nov. 10.
Saudi Arabia, OPEC’s biggest producer, wants a deal to boost prices and head off a long-term shortage in supply, Andurand said. A freeze could bump up prices to $55 to $60 by year’s end, he said. Even without an agreement, prices will “slowly trend upward" towards $60 to $70 by the end of 2017.
The firm’s main fund lost 3% in October but is still up 7.8% for the year, according to the letter, with both numbers beating returns for the S&P GSCI crude-oil index.