Pierre Andurand, founder of Andurand Capital Management LLP, a well-known oil hedge fund and known as the "god of crude oil trading", believes that as the current tight market is difficult to increase real production and make up for the loss of Russian crude oil supply.The price of crude oil is expected to rise to $200 a barrel by the end of this year.. He saidThe price of oil is far from reaching the level that hurts demand.。

The gap may not be made up.

Andurand predicted that due to the conflict between Russia and Ukraine and subsequent restrictions on Russian crude oil supplies by Western countriesAbout 4 million barrels of crude oil cannot flow normally every day.. While the release of crude oil from strategic reserves may help to increase supply in the short term, the energy industry may not be able to fully fill this supply gap by increasing capacity.

Andurand thinksEven if Russia agrees to a ceasefire, Russian crude oil may withdraw from the energy supply market.. At the same time, US shale oil producers and some OPEC members will also try to increase production after years of underinvestment, which will face intense pressure from shareholders.

Andurand said in an interview with the media:

"I don't think if they suddenly stop the exchange of fire, the crude oil supply will improve. This is not the case. These crude oil supplies will disappear from the market forever. We will have to put up with higher prices to dampen demand, make it seen as a luxury in the market and accelerate the energy transformation. "

He said tighter commodity supplies would "actually limit the economic goals we can achieve". Andurand says:

"A lot of people just assume in their economic models that we can have enough, as long as we want to own goods, it's just a matter of demand. But not this time, this time it will be a supply-side restriction. "

Andurand's global fame in commodities trading is mainly due to his success in using commodities trading to generate huge wealth for himself and his supportive investors in some extremely volatile times. For example, in April 2020, as supply outweighed demand, oil prices fell sharply to a negative range, during which time he successfully shorted crude oil and made a big profit.

The game between the buyer and the seller

Now, he thinks the world may face the opposite situation. Supply is so tight that even if spot prices soar, some market participants may not deliver spot crude oil at this time.

'during the COVID-19 epidemic, demand levels suddenly dropped to 20% overnight, and then we built up a lot of inventory in a short period of time, 'Andurand said in an interview. And, you know, the market's infrastructure is not primarily designed to withstand the kind of 20% drop in global demand overnight.

As a result, with demand so low, it only takes a month and a half for empty repositories to be filled. So in April 2020, when all stocks were filled and demand plummeted due to a shutdown during the COVID-19 epidemic, it showed that no one was willing to buy the crude oil, which was an important reason for the collapse in oil prices at that time.

When we are in the opposite situation, that is, when inventories are very low, some parts of the world are still trying to deliver certain contracts, such as Cushing WTI crude in Oklahoma, where stocks are almost empty and there is no crude oil in those storage tanks.

If someone wants to deliver the oil at this point in time, almost no one can deliver, and the seller's quotation can change at will. Usually, speculators are in the middle, allowing prices to fluctuate enough so that producers take the initiative to produce so that storage tanks do not empty or fill up as they did in 2020.

"this may mean that prices are not rising fast enough, not long enough, sellers do not want to bring in more extra supply, and the market cannot reduce demand until inventories run out. This is why people sometimes wonder what is the role of speculators. I mean, this is actually 'price discovery' and sends the right signal to producers and consumers to avoid running out of storage space or inventory, so prices can rise anywhere. "

ESG is not the main influencing factor at present.

With regard to oil, one of the questions often raised is the extent to which current policy decisions made by the US government or the world in favour of ESG trends have limited new crude oil production. However, in Andurand's view, this is a secondary factor that is less important than more direct financial and material considerations. He cited two main factors for the supply-side downturn in the United States. Andurand says:

"the first problem is that the United States has already extracted a lot of crude oil that is easy to extract. You know, generally speaking, when you come to a new oil field, a new basin, producers will drill where it is easier to get oil, and over time, they will drill in more challenging places.

So what I want to say is that the large-scale exploitation of shale oil in the United States has been going on for more than 10 years, and there is still room for it. But what we need to know is that at least 10 years of strong supply is needed, but I'm not sure if there is enough mining space, and decades of high production and high production targets are not easy. "

Another reason is that many US shale oil producers have lost a lot of profits, and they have been focused on increasing production for years and are heavily in debt, making it difficult or even impossible to make a profit. The industry has spent about $600 billion in cash, and shareholders have been hit hard. So for those producers, production in the United States is rising, but these companies are actually not profitable.

But now they are beginning to make a profit, so, under current prices, they have achieved positive cash flow and good profits. Shareholders of these companies will put pressure on chief executives not to increase production too fast, because if their production increases too fast and prices fall again, they will lose money. "

After spending more than $5 trillion in the industry's last cycle, the reluctance to increase investment is not uncommon. Analysts and industry insiders often believe that this is one of the main reasons why supply has not reacted more strongly after the rise in crude oil prices.

Rory Johnston, an industry analyst, made the same basic point. Jeff Currie, an analyst at Goldman Sachs Group Group, often points out that financial market incentives largely reward companies that optimize their cash flow while restraining large-scale investment to some extent.

In a recent interview, the chief executive of Pioneer Natural Resources said that whatever the White House's requirements, US shale oil could not grow significantly, in part because of restrictions, including labour, but also because of investor demand.

Target price: $200

As Andurand points out, potential supply outside the US is also limited. Some OPEC + members, especially in Africa, have struggled to meet their allowable production quotas because of years of deteriorating infrastructure.

Andurand representsOil prices will eventually reach around $200, when we will be able to see real demand disrupted and the potential balance of the market.

"I think it will eventually be close to $200 a barrel-much higher than it is today. I don't think the oil price of $110 a barrel will undermine demand, and oil prices will have to rise sharply before demand falls sharply enough. Suppose there are no coercive measures introduced by the government and some form of restrictions, such as two days a month, people are locked up to do nothing. I mean, without a government order, I think an oil price of about $200 would be enough to meet market demand and balance the market. "Andurand said.

Andurand also stressed that the economy will increasingly adapt to this higher and higher number in the future. Although $200 seems to be a high figure, others in the industry also think it is possible. In January, Doug King, a prominent commodities trader, also said oil prices could reach that level within five years, and Nigeria's oil minister said oil prices could rise to that high and then fall back to the $150-a-barrel range.

Russian Deputy Prime Minister Alexander Novak even warned that oil prices could exceed $300. He had previously said a ban on Russian oil imports would have "catastrophic" consequences at a time when western countries were considering further sanctions against Moscow over Ukraine. "the oil ban on Russia will have disastrous consequences for the global market, and the rise in oil prices will become unpredictable. Oil prices may exceed $300 a barrel or even higher. Novak said in an interview with the media earlier.