Energy and commods hedge funds post big gains as prices skyrocket

·3 min read
Shell's Brent Delta oil platform is towed into Hartlepool

By Maiya Keidan and Julia Payne

TORONTO/LONDON (Reuters) - Hedge funds that bet on a big comeback for commodities enjoyed soaring returns in the first nine months of 2021 as the world faced an energy crunch.

The average global macro commodities hedge fund is up 23.2% for the first nine months of the year, according to data provider PivotalPath, a period that saw the average equity energy hedge fund rise 12.3%.

Lockdowns and curtailed travel during the pandemic, along with a shift to renewable energy, led to underinvestment in oil and gas just as fossil-fuel demand rebounded sharply, boosting prices for fuels worldwide.

Last week, Brent oil futures hit a three-year high at $85 a barrel. Natural gas and power prices have soared, particularly in Europe, where earlier this month benchmark wholesale gas futures at the Dutch TTF hub were up 400% from the start of the year.

Those markets have been volatile, particularly natural gas, where volatility measures hit a record this month. Trend-following hedge funds enjoyed strong gains in September from natural gas, according to UBS.

London-based long-short hedge fund Westbeck Capital Management, which runs $230 million in assets under management, made 17.2% in September, bringing year-to-date returns to 94%, a firm spokesman told Reuters.

Westbeck went into September with long bets on exploration and production companies, particularly in Canada, including Canadian Natural Resources, Baytex Energy Corp and MEG Energy Corp, according to its August investment letter seen by Reuters. The fund noted the summer pullback in oil and oil equities was a great buying opportunity.

U.K.-based Odey Asset Management made 40% between the start of the year and Oct. 15 in its long-short equities fund, which also bets on commodities. Auspice Capital, a Canadian computer-driven commodities-focused fund, landed returns of 30.5% in the year to Oct. 14.

"Demand could soften in the next decade as the world transitions to green energy, but in the near term $100-150 oil is not off the table," said Tim Pickering, the fund's chief investment officer. "On an inflation adjusted basis, the price of oil is low. Volatility will likely remain high."

London and Malta-based Andurand Capital Management has also had a stellar year with one of its two funds rising 83% so far this year after a big 20% bounce in September, Reuters reported on Oct. 5.

Current investor position leaves room for oil to run higher, analysts said. Managed funds currently have a net long position of more than 327,000 U.S. crude contracts on the NYMEX, according to the Commodity Futures Trading Commission.

That's still well short of this summer's level of bullishness, according to RBC Capital Markets data, leaving room for more investors to stake out long positions.

"I certainly believe we're going to get to triple digits," said David D. Tawil, co-founder at New York-based event-driven hedge fund, Maglan Capital, and interim CEO of Centaurus Energy.

Tawil, who declined to provide his performance data, said the rally will be driven by coronavirus restrictions being lifted, rising inflation and increased winter demand.

(Reporting by Maiya Keidan and Julia Payne; Editing by David Gregorio)

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