Oil prices plummeted on Monday morning as the impact from the coronavirus outbreak – coupled with a Saudi Arabian price cut – dragged global stock markets lower, with a number of major hedge funds standing to gain from the commodities crash.
Brent crude fell to just over USD36 per barrel, while West Texas Intermediate was roughly USD32 on Monday morning. Saudi Arabia has sparked a price war by slashing costs, souring relations between Opec and Russia, with the subsequent 30 per cent fall the biggest since the 1991 Gulf War.
Amid hefty slides not seen since the 2008 financial crisis, BP and Shell both tumbled, while shares in Tullow Oil dropped to 15.50pp, down from about 37pp a week ago. Crispin Odey’s Odey Asset Management has ramped up its long-standing bet against the London-listed oil and gas explorer, with a 1.64 per cent net short position. Several other hedge funds including Citadel, BlackRock, Pictet Asset Management and Squarepoint are also shorting the firm, according to regulatory disclosures.
Elsewhere, North Sea-oil focused Premier Oil – the target of activist hedge fund ARCM (Asia Research & Capital Management) – dived to 29.57pp from last Friday’s high of almost 64pp. Connor, Clark & Lunn Investment Management and Whitebox Advisors are also holding bearish bets against Premier Oil, according to FCA filings.
Nigel Green, chief executive and founder of deVere Group, said a global recession is now “almost inevitable” as a result of the oil stand-off and the Covid-19 outbreak.
“Every major stock market is getting hammered as oil prices plunge due to a price war following the breakdown of Saudi Arabia’s oil-cutting alliance with Russia over the weekend,” Green said on Monday. “This is an issue that will not be resolved overnight and it can be expected to have far-reaching consequences.”
Artur Baluszynski, head of research at Henderson Rowe, said oil- and mining-heavy indices such as the FTSE 100 – already weakened by the coronavirus – are “massively exposed”, adding that oil prices would likely return to reach 2016’s lows following the Opec-Russia split.
“Cheap oil is usually a big positive for consumers. But this takes time to feed through to the real economy and with both supply and demand being significantly affected by the coronavirus, the markets will continue to focus on the downside,” Baluszynski observed.
Energy-focused equity hedge funds were down 1.98 per cent in February, and negative 2.54 per cent for the year, according to HFRI data released on Monday morning
