Russian president Vladimir Putin has “misplaced the power warfare” and the worst of the European fuel and energy disaster has handed, in accordance with Pierre Andurand, one of many world’s top-performing merchants within the sector.
Andurand, whose power centered hedge funds have loved three bumper years of returns in the course of the coronavirus pandemic, stated he had closed out all his positions in natural gas markets as a result of final 12 months’s value surge to report ranges was unlikely to be repeated, with Europe studying quickly to stay with out Russian fuel.
Deep cuts to Russian fuel exports in retaliation for western help for Ukraine drove the European benchmark value above €300 a megawatt hour in August, greater than 10 occasions its regular stage. However in current months it has tumbled again to about €50/MWh — nonetheless traditionally excessive however much more manageable for European economies mired in a value of residing disaster.
“I believe Putin misplaced the power warfare,” Andurand stated in an interview with the Monetary Instances. “Very excessive pure fuel and energy costs in Europe had been extraordinarily unhealthy for the world financial system however now they’ve come again to a extra cheap stage. If fuel costs keep right here there might be a lot much less fear about inflation and rates of interest rises. There’s no extra worry of an power disaster.
“Now that Europe is getting used to residing with out Russian fuel why would they ever return?” he added.
If appropriate, the French kick-boxing fanatic’s name spells the top of probably the most profitable hedge fund trades of current years. Some managers made important income from rocketing European fuel costs after Russia started squeezing provides to Europe in 2021 earlier than slashing exports after its full-scale invasion of Ukraine final February.
Andurand, whose agency Andurand Capital manages $1.4bn in property, noticed his Commodities Discretionary Enhanced fund achieve some 650 per cent from the beginning of 2020 till the top of final 12 months. The previous Goldman Sachs and Vitol power dealer made his identify by calling most of the massive strikes in oil and different power commodities over the previous 20 years, together with oil costs turning damaging in the course of the early levels of the coronavirus pandemic.
Andurand, whose fund is down 3 per cent to date in 2023, stated Putin had erred in reducing fuel exports to Europe final 12 months, as though he succeeded in driving costs greater quickly he had underestimated consumers’ skill to adapt.
“I believe it was an enormous miscalculation over who had the leverage by Putin, in the identical approach he miscalculated how Ukraine would combat again and the west could be united,” Andurand stated.
“Russia has misplaced its greatest buyer eternally, and it’ll take not less than a decade to deliver sufficient pipelines [to redirect those gas sales] to Asia. As soon as Russia can solely promote fuel to China, Beijing might be ready to determine the worth.”
Whereas Andurand argued the fuel and energy disaster was coming to an finish, he nonetheless stated there was the potential for giant strikes within the commodity for which he’s greatest recognized. Oil costs, he stated, had fallen too far in current months and had been set to rally as China’s financial rebound from the top of its zero-Covid insurance policies accelerates.
Oil might hit $140 a barrel later in 2023, Andurand stated, arguing that the market is taking too short-term a view, each due to losses suffered final 12 months and in addition because of the rising dominance of multi-manager and quant hedge funds in it.
“The reopening of China goes to result in much more oil demand progress than anticipated,” Andurand stated, including he had scaled again oil positions within the second half of final 12 months as costs fell, however had upped his bets in mid-December.
“It would take a few months for the market to recognise the size of the demand improve we’re seeing,” he added, arguing that Chinese language-led international consumption might rise by as a lot as 4mn barrels a day this 12 months in contrast with simply over 1mn b/d common annual progress usually.
“That may imply actually massive stock attracts and the market will get very tight,” Andurand stated, including that $140 was “not a loopy excessive value” as soon as adjusted for inflation as oil’s all-time peak of $147 a barrel was 15 years in the past.
Oil briefly surged to $139 a barrel final 12 months shortly after Russia’s invasion of Ukraine, however has fallen again to $83 a barrel after it turned clear the impact of western sanctions on the quantity of Moscow’s oil exports had been restricted.
Andurand stated he was not relying on the current tightening of western sanctions on Russia to spice up the worth as he predicted the measures had been unlikely to take away too many barrels from the market, with Moscow selecting to promote its oil at a reduction to draw new clients in Asia.
“I don’t wish to guess on a big provide disruption from Russia as they’ve proven a willingness to maneuver the barrels even when at very low costs,” Andurand stated.
“My base case is we gained’t have a significant provide disruption from Russia and I’m focusing extra on what China and Asia’s reopening means total.”
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