Thursday 23 February 2017

Legendary Odey ups Tullow short position by a third amid glut

Some analysts have predicted oil prices could possibly dip as low as $20 a barrel, writes Gavin McLoughlin

Gavin McLoughlin

Gavin McLoughlin

Legendary hedge fund manager Crispin Odey upped his short position in Tullow Oil by around a third last week, with oil prices now hitting fresh seven-year lows
Legendary hedge fund manager Crispin Odey upped his short position in Tullow Oil by around a third last week, with oil prices now hitting fresh seven-year lows

Legendary hedge fund manager Crispin Odey upped his short position in Tullow Oil by around a third last week, with oil prices now hitting fresh seven-year lows and the International Energy Agency (IEA) warning that the supply glut is set to get worse in the new year.

Odey's firm, Odey Asset Management, lifted its short position in the Irish oil and gas explorer on December 2 by 1,823,182 shares, to a total of 7,930,663, according to Bloomberg data.

Since then, Tullow's share price has dropped by around 40p.

The market value - or exposure - of Odey's short position is just over £14m (€19.3m), according to Bloomberg. Other significant short positions are held by Lansdowne Partners UK (£40.47m), and Man Asset Management (£12.92m).

Shorting refers to a bet on a falling share price. It involves borrowing and then selling shares in the hope that the share price will fall - enabling the shorter to buy back the same number of shares at a lower price.

Billionaire Odey is perhaps the best-known fund manager in Europe, having made a killing from shorting banks before the financial crisis. His move comes at a time of significant turmoil for oil and gas explorers, with oil at seven-year lows. On Friday, Brent slipped below $39 per barrel for the first time since December 2008 as the IEA, which advises developed nations on energy, warned that demand growth was starting to slow.

"The technicals and the fundamentals are singing from the same hymn sheet," said Tamas Varga, oil analyst with PVM Associates. "We will not see support until we hit the lows of 2008."

Prices tumbled this month after Opec failed to impose a ceiling on output. Opec producers pumped more oil in November than in any month since 2008 - some 31.7 million barrels per day.

"Consumption is likely to have peaked in the third quarter and demand growth is expected to slow to a still-healthy 1.2 million barrels a day in 2016, as support from sharply falling oil prices begins to fade," the IEA said in its monthly report.

Should sanctions on Iran be lifted, its exports could rise, adding to the market's oversupply.

"The next quarter is going to be particularly tough as we go from a high-demand to a low-demand quarter," said Richard Gorry, director of consultancy JBC Energy Asia.

"Can you rule out $20 per barrel? No, you can't," he said, although adding that prices would not likely fall that far.

Banks such as Goldman Sachs have said oil prices could fall to as low as $20 per barrel as the world might run out of capacity to store unwanted oil. The IEA said it was very unlikely that global storage capacity would be filled.

"Concerns about reaching storage capacity limits appear to be overblown," it said.

The IEA said it expects a decline in non-Opec production in 2016, as US light tight oil shifts into contraction, and it said further spending cuts could spur deeper output declines.

(Additional reporting, Reuters)

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