Commodities hedge fund Westbeck outflanks benchmarks, as oil correction offers “big buying opportunity” in Q2

Oli rig at sunset

The recent dip in oil markets is a “healthy correction” which heralds attractive buying opportunities, according to London-based commodities-focused hedge fund Westbeck Capital Management, which maintained its positive Q1 momentum despite March’s pullback.

The Westbeck Energy Opportunity Fund – which trades oil markets using a long/short directional approach across equities, futures and options – gained 6.2 per cent last month, outflanking industry benchmarks Brent (Total Return), which lost 1.4 per cent in March, and XOP, which added 1 per cent.

The gain follows an impressive 32.8 per cent February advance, which helped bring the strategy’s first quarter returns to more than 40 per cent.

The sustained positive performance came despite a recent oil market stumble. Front crude and XOP both “violently corrected”, falling 15 per cent, which was followed by three weeks of volatile sideways consolidation in March, Westbeck said in a strategy update this week.

The slide stemmed from a variety of developments globally, including a surge in Iranian exports after the new US administration opted not to enforce sanctions; a renewed wave of Covid-19 infections mainly in Europe and India, which weakened short-term demand; and the decision by OPEC+ to slowly re-increase production, which Westbeck said was “unhelpful”.

“This took the breath out of the physical market and in turn got the CTA selling train into action,” the firm added.

Still, the London-based manager believes this is a “healthy correction”, following a “dizzying” rally in the commodity since late October, and remains optimistic on a price rebound as Covid vaccination programmes accelerate across a number of countries.

“This is an attractive buying opportunity, in our view, for market participants who missed the vertical rally,” Westbeck explained in a strategy update this week. The recent events “have little bearing on the aggressive oil market tightening that we continue to expect in the coming weeks.”

The Westbeck Energy Opportunity Fund – co-run by Westbeck co-founders Jean-Louis Le Mee, CIO, and Will Smith, CEO and deputy CIO – remains positioned for a price rebound, with USD76 per barrel still a “realistic target” for Q2, albeit towards the end of the quarter.

“We warned that the energy rebound would not be a straight line and that dips would have to be bought,” they said.

They pointed to the prospect of reopening economies in Israel and the UAE, with further easing of restrictions and continued vaccine progress in the US, the UK, Canada, and the EU, as supportive of an upward price movement.

“We believe that the strong demand recovery we have been expecting is starting to play out in the US and will gain a lot of momentum into the summer, driving large crude draws and higher prices.”

Author Profile
Hugh Leask
Employee title
Editor, Hedgeweek