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BBL Commodities LP. one of the world’s largest oil-focused hedge funds. believes Brent crude will climb to $80 bbl this year as stockpiles drop rapidly on the back of production cuts made by OPEC and its allies.
`We think the market is vastly overestimating the near term inventory buffer.` Jonathan Goldberg. the founder of BBL Commodities. said in an interview last week. `Given the rise in demand over the past five years. inventories are especially low as a measure of forward cover.`
With crude inventories down. Goldberg expects Brent to climb about 15% from current levels of $68.50 bbl to about $80 bbl. He also sees further gains in the premium of spot prices to prices further in future. a structure known in the oil market as backwardation. `We see backwardation stepping up.` he said.
Measured as the price difference between the spot contract and the contract for delivery in six months. Brent’s backwardation stands at $1.60 bbl. up from minus $0.49 bbl in August.
BBL Commodities. with about $600 million in assets under management. is one of the few remaining oil-focused hedge funds. alongside Andurand Capital Management. run by the eponymous oil trader. and David D’Alessandro’s CMDTY Capital Management. The firm returned about 2% last year.
Goldberg. who cut his teeth trading oil for Goldman Sachs Group and Glencore. before setting up New York-based BBL Commodities in 2013. said that OPEC had shown `tremendous discipline` with its oil output cuts.
`They have listened to the marketplace and have done an outstanding job complying with lower export quotas. However. it is imperative they maintain this discipline.` he said. With U.S. shale rebounding fast in 2018. he said that `if OPEC falters in their commitment to complying with the export agreement. oil prices will decline quickly and sharply.`
Goldberg was one of the handful of oil hedge fund managers and traders that met in secret with Saudi Arabia oil minister Khalid Al-Falih last summer to discuss the energy market. according to people familiar with the matter. who asked not to be named discussing a private meeting.
Goldberg cautioned that his bullishness was short-term.
`We are not long term oil bulls.` he said. adding he didn’t share the view put forward by others — oil trader Trafigura for example — who forecast higher prices on the back of falling investment by energy companies.
`It’s true that capital expenditure in the oil industry has declined over the last few years. but that’s largely the result of efficiencies in finding oil.` he said. pointing to shale as an example of how easy it is to discover oil deposits. `The industry simply requires less dollars. We think we are in a very bullish part of the curve in 2018 but that dynamic will change over time.`
In particular. Goldberg said that beyond 2020 electric vehicles could have a significant impact on oil demand and prices. `Electric vehicles are an existential threat to the oil industry.` he said.
