A Highly Successful Oil Trader Thinks Oil Will Rise

There are many companies in Singapore’s stock market that deal with the oil & gas industry. As of November 2014, there were a total of 54 such companies.

The past two years have been a difficult time for these companies with the price of oil sitting at around US$40 per barrel today, down significantly from the level of over US$100 in mid-2014.

Two weeks ago, Swiber Holdings Limited (SGX: BGK) became one of the latest casualties in the oil & gas space when it chose to wind up its business. The company is currently under judicial management and had recently defaulted on coupon payments for a certain loan.

Other oil & gas companies such as Ezra Holdings Limited (SGX: 5DN) and Sembcorp Marine Ltd (SGX: S51) are also good examples of the pain felt across the industry. In the three months ended 31 May 2016, Ezra clocked a loss of US$247 million even when its revenue was only US$126 million. Sembcorp Marine saw its revenue and profit fall by 25% and 90%, respectively, in the second-quarter of 2016.

So, where might oil prices move from here? According to a Bloomberg article published just last week, oil trader Andy Hall thinks that oil prices are set to climb higher from current levels.

Hall started his oil trading career with BP Plc in the 1970s and eventually headed the legendary trading house Phibro Energy Inc. Philbro had made US$4.4 billion in trading gains from 1997 to 2009. Hall, who foresaw oil’s sharp rise and fall in 2008, currently runs the hedge fund, Astenbeck Capital Management LLC.

The Bloomberg article I referenced earlier shared some of Hall’s thinking behind his view that oil prices will rise. Hall thinks that oil prices are currently at levels that “would ensure the eventual bankruptcy of most of the oil industry.” This would affect not just private oil companies, but even countries such as Iraq, Nigeria, and Venezuela. He also said that current prices for oil “are just not sustainable.”

Other factors that Hall cited include shrinking supply from the US to Venezuela, and a cooler winter which is likely to drive up demand for oil.

Hall has spoken. But only time will tell if Hall is right or wrong.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Ong Kai Kiat does not own shares in any companies mentioned