Oil “God” Is Bullish on Crude
Renowned oil trader Andrew Hall says crude prices may have hit bottom.
The former Citigroup manager, who made $100 million trading oil during the financial crisis (which earned him the nickname “God” of the crude market), says the energy markets face many headwinds, but investors are better off betting on oil.
Hall says the biggest concern for oil investors is a global recession, which could significantly impact demand. But he's not expecting a worldwide slowdown. In an interview with Bloomberg, Hall said:
With prices hovering at a little over $50 a barrel, I think you have to have a pretty negative outlook on the global economy to believe the prices will continue their downward trajectory. I don't think we're on the verge of a global recession or anything like that.
Of course, Andrew Hall is no prophet of energy or any markets. In 2017, Hall shut down the main hedge fund he was running with a 30% loss. So I'm not afraid to disagree with “God” on this one.
I believe, like many others, that a significant global slowdown does, in fact, threaten markets in the near term.
But I don't think this slowdown will affect oil prices to the downside — or at least not as much as expected.
A lot of people are automatically comparing this global recession everyone is talking about and its potential effects on the oil market to the financial crisis of 2008. But that's a mistake.
You probably remember that the price of oil fell from $150 per barrel to $30 per barrel in six months between July 2008 and January 2009. It was a crash of 80% in prices.
But what people don't consider is all the speculation and hype in the oil markets just prior to the bigger crash.
This was a time when everyone was talking about peak oil, crude's finite limitations, and what that was going to mean for future generations. Fears of running out of oil helped fuel the growth of battery electric vehicles.
Everyone wanted to believe oil prices were heading higher for different reasons. All this hype added significantly to oil prices, creating what some might even call a bubble. Have a look for yourself:
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The price of oil actually began steadily rising way back at the turn of the millennium. And by 2006, oil prices were at their highest levels ever.
So while it's true that oil prices did collapse amid the financial crisis of 2008 and that the slowdown did affect demand, we should also consider that going into the pullback, the oil market was experiencing a bull market like never before.
Right now, there is little to no hype or speculation significantly adding to oil prices. And that leaves a lot less room for crude prices to drop much further.
In short, we believe a global recession is, in fact, forthcoming. And while this pullback could affect crude, there's little to no chance it will have as much of an impact on oil prices to the downside as was experienced in 2008.
A comparative 80% drop in prices would put oil around $10 per barrel. And that's very unlikely to happen.
Until next time,
As an editor at Energy and Capital, Luke’s analysis and market research reach hundreds of thousands of investors every day. Luke is also a contributing editor of Angel Publishing’s Bull and Bust Report newsletter. There, he helps investors in leveraging the future supply-demand imbalance that he believes could be key to a cyclical upswing in the hard asset markets. For more on Luke, go to his editor’s page.
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