Energy hedge fund Westbeck sees “big opportunity” in oil equities following stellar first-half performance

Oil barrels

Westbeck Capital, a London-based oil-focused hedge fund, continues to generate stellar double-digit returns in 2020’s lively energy markets, and believes short-term mis-pricings in oil equities offers further buying opportunities ahead of a potential price recovery later this year.

The firm’s Westbeck Energy Opportunity Fund - managed by co-founders Will Smith, CEO and former partner and head of natural resources at Sir Michael Hintze’s multi-strategy hedge fund CQS, and CIO Jean-Louis Le Mee, ex-founding partner of BlueGold Capital - gained almost 9 per cent in June.

That rise was the fourth consecutive month of positive returns for the strategy, which has now advanced a remarkable 70 per cent in the first six months of this year.

Westbeck, which started in 2016, has recorded positive returns in 15 out of the last 18 weeks, and is one of several oil-focused hedge fund managers that have posted high double-digit gains trading 2020’s see-saw commodities prices.

Now, heading into the second half of the year, the firm is turning more cautious short-term in oil and is eyeing “a big opportunity” arising in oil equities.

In its latest investor update, the team highlighted a 30 per cent pull-back in oil equities over the past month. They noted that uncertainty around oil demand recovery will continue to be a feature over the coming months, with the recent surge in Covid-19 cases in the US likely stalling the oil demand recovery stateside.

“Our strong conviction in significantly higher crude prices by year-end, and an USD80-85 environment by late 2021 to early 2022, is only reinforced by a weakening USD and inflation fears emerging, both of which are likely to contribute to increasing inflows into the commodity complex in our view,” the firm wrote.

Westbeck described recent oil equities mis-pricings as “puzzling”, and “one of many reasons we have re-allocated a significant amount of risk away from oil and into equities in recent days.”

Outlining their stance, they added: “The risks of global spare capacity being exhausted in 2022 or 2023 in the context of low global inventories are high in our view. This could spur a spectacular price spike well above USD100 to choke demand, as witnessed in 2007-2008.”