Commodity Trader King Eyes $200 Oil | Rigzone
A hedge fund managed by commodities trader Doug King posted record performance last year, helped by soaring prices for energy, food, electricity and freight.
King’s $244 million Merchant Commodity Fund gained 74%, beating its previous all-time high of 59% in 2014, according to a letter to investors seen by Bloomberg.
King, 55, based in London, is part of a group of hedge fund managers, including Pierre Andurand, who made huge profits on commodities last year amid the global economic recovery from the pandemic coronavirus and supply disruptions.
The Bloomberg Commodity Spot Index, which tracks energy, metals and crop futures, jumped 27% in 2021, the highest in more than a decade.
Oil jumped more than 50% to around $80 a barrel. It’s almost up 10% so far this year. King said it could soon hit $100 and even $200 over the next five years due to a lack of exploration and investment to maintain existing supplies.
“We believe in structural commodity inflation on the supply side that most will never have seen – the highest since the 1970s,” he said in an interview. “Only OPEC will react to price measures and they are dumped every month.”
OPEC and its partners are gradually increasing crude production after making deep cuts of nearly 10 million barrels per day in 2020 when the pandemic first hit. While the group is supposed to pump an additional 400,000 barrels a day each month, many of its members are struggling to meet their quotas.
“In practice, far less oil is going to market,” the Merchant Commodity Fund said in its letter to investors. “Its members are simply unable to return to pre-covid production levels. All of this is due to a lack of investment.
Within the 23-nation OPEC+, the “only real spare capacity” resides in Saudi Arabia, the United Arab Emirates and Kuwait, according to the letter. Even Russia, which leads OPEC+ with the Saudis, cannot pump much more.
“It is no state secret that Russia is at its peak, or very close,” the letter said. “If it’s not next month, then definitely by April there may be no more barrels to give away.”
While the rapid spread of the omicron variant could slow economic growth, many analysts agree with King’s bullish assessment on commodities. Goldman Sachs Group Inc. is “extremely bullish,” citing low spare capacity among oil producers and the U.S. Federal Reserve likely raising interest rates this year, which could deter investors from buying stocks and bonds .
Oman, a member of OPEC+, said this week that the group would try to prevent the oil market from “overheating” and did not want prices to hit $100 a barrel.