Energy trader Andurand warns of “crazy losses” as US WTI oil prices turn negative

Oil pipeline

Pierre Andurand, the well-known head of commodities-focused fund manager Andurand Capital Management, is cautioning of “crazy losses” as oil markets continue to suffer unprecedented shocks, warning: “Be very careful out there.”

The London-based oil specialist, whose strategy has reportedly soared amid recent energy volatility, flagged up the potential impact of tumbling prices on oil ETFs in a series of tweets on Monday and Tuesday, after prices for the May futures contract on West Texas Intermediate – the US benchmark – collapsed into negative price territory for the first time ever.

“Wondering what would happen to USO and other Oil ETFs that mainly hold June WTI if June WTI goes negative before the roll?,” he tweeted on Tuesday.

Futures contracts on WTI collapsed into negative territory at some -USD37 on Monday, rising briefly before heading negative again on Tuesday. The collapse stems from fears of a global storage capacity shortage, driving sellers to quickly offload inventory as futures contracts on the US benchmark expired.

Brent crude, the UK benchmark, meanwhile fell below USD20 at one point on Tuesday, its lowest level since 2002.

Andurand indicated that roughly 60 per cent of all Oil ETFs are in the June WTI price, adding: “If June WTI rolls down to May WTI level over the next few weeks, investors in ETF tracking front WTI would lose about 40 per cent of their money, even though front contract WTI will still show USD14.50.”

He said: “I think June will be worse than May. Even though we will build inventories at a slower pace, we will still build significant amount of inventories during the month of May. Until we run out of space. Just be careful out there. Don’t try to go long too early.”

He later tweeted: “I think the CME might have no other choice but to close out the ETFs positions. It cannot take the risk to have negative prices before the roll and be on the hook. This shock is real. Be very careful out there. We are going to hear about crazy losses in the days and weeks to come.”

Andurand’s long-running commodities-focused hedge fund strategy reportedly advanced 53.1 per cent in the first quarter of this year, fuelled by an eye-catching 63 per cent March return.

The strategy surged after the trader, best known for his bullish positions on oil, began heavily shorting the commodity as the Covid-19 pandemic swept through global markets.

Commodities prices, already precarious following the assassination in January of Iranian general Qassem Soleimani and Russia/Opec spat in early March, have been in sharp decline as demand has dried up during the global Coronavirus outbreak.