Crude oil may reach a record $130 a barrel this year because pension funds are investing more in commodities, said Pierre Andurand, the chief investment officer of BlueGold Capital Management LLP, a hedge fund.
The outlook for oil over the next five years is also ``bullish'' as producers find it hard to replenish reserves, and demand outpaces supply, London-based Andurand said in a telephone interview on March 5.
Oil companies such as Exxon Mobil Corp., Royal Dutch Shell Plc and BP Plc are finding it tougher to replace their findings and are drilling for harder-to-reach deposits while energy demand and crude prices surge to records. With commodities prices surging to all-time highs, the California Public Employees' Retirement System, the largest U.S. pension fund, said it plans to boost investments.
``There's a lot of index funds flowing into oil, and the world is under-invested in commodities, especially pension funds,'' said Andurand, who used to trade energy derivatives in Singapore and London for Vitol Group. ``Oil is now a medium-to- long-term outlook story, and it's bullish in terms of fundamentals of production constraints.''
Calpers, which has about $240 billion in assets, agreed at a Feb. 19 board meeting to hold between 0.5 percent and 3 percent of its assets in commodities, spokesman Clark McKinley said on Feb. 28. The Sacramento, California-based fund last year put $450 million into commodities - its first such investment.
With crude oil trading above $100 a barrel, competition among producers to find untapped reserves has caused a worldwide shortage of rigs and crews.
`$150 a Barrel'
``Next year, oil may rise even further to $150 a barrel,'' said Andurand, whose $300 million fund has so far invested 70 percent in energy and 30 percent in agriculture and metals since February.
Andurand is running BlueGold Capital with Julian Reis, who previously headed U.S.-based Tudor Investment Corp.'s Singapore unit, and Dennis Crema, who worked as a gasoline trader at Geneva-based Vitol for 13 years.
Commodities have outperformed stocks as oil, industrial metals and wheat prices rallied to records this year. Investments in commodity hedge funds rose to $104 billion at the end of 2007 from $73 billion in the first seven months of last year, according to data from Singapore-based research company Eurekahedge.
The Standard & Poor's GSCI index of 24 commodities has risen 14 percent so far this year, adding to a 33 percent gain in 2007. In comparison, the Standard & Poor's 500 Index of stocks has fallen 11 percent in 2008, while U.S. Treasuries increased by 3.3 percent, according to Merrill Lynch & Co. indexes.
Before Vitol, Andurand was a trader at J. Aron, Goldman Sachs Group Inc.'s commodities unit, and Bank of America in Singapore.
`Flight to Oil'
Investors who are flocking to oil may be exacerbating the U.S. dollar's plunge and pushing oil prices to new highs, according to the president of Cambridge Energy Research Associates Inc.
``What you have normally is the flight to dollars as a refuge, but today instead there is a flight to oil,'' Daniel Yergin said in an interview in Washington on March 5. ``It reflects not only a weakening of the dollar, but the expectation of further weakening. Oil is a giant hedge against the dollar.''
The dollar touched a record low of $1.5395 per euro today. Crude oil futures traded in New York surged to a historic close of $105.47 a barrel yesterday. U.S. economic growth has slowed to 0.6 percent in the fourth quarter.
The worst U.S. housing market in more than a quarter of a century, fueled by $146 billion in losses by Wall Street banks, and a decelerating economy have contributed to a plunging dollar and pushed investors to buy oil, which has held its value better than the dollar. The result has been U.S. gasoline consumers being swept up in investors' flight to oil, Yergin said.
The outlook for oil over the next five years is also ``bullish'' as producers find it hard to replenish reserves, and demand outpaces supply, London-based Andurand said in a telephone interview on March 5.
Oil companies such as Exxon Mobil Corp., Royal Dutch Shell Plc and BP Plc are finding it tougher to replace their findings and are drilling for harder-to-reach deposits while energy demand and crude prices surge to records. With commodities prices surging to all-time highs, the California Public Employees' Retirement System, the largest U.S. pension fund, said it plans to boost investments.
``There's a lot of index funds flowing into oil, and the world is under-invested in commodities, especially pension funds,'' said Andurand, who used to trade energy derivatives in Singapore and London for Vitol Group. ``Oil is now a medium-to- long-term outlook story, and it's bullish in terms of fundamentals of production constraints.''
Calpers, which has about $240 billion in assets, agreed at a Feb. 19 board meeting to hold between 0.5 percent and 3 percent of its assets in commodities, spokesman Clark McKinley said on Feb. 28. The Sacramento, California-based fund last year put $450 million into commodities - its first such investment.
With crude oil trading above $100 a barrel, competition among producers to find untapped reserves has caused a worldwide shortage of rigs and crews.
`$150 a Barrel'
``Next year, oil may rise even further to $150 a barrel,'' said Andurand, whose $300 million fund has so far invested 70 percent in energy and 30 percent in agriculture and metals since February.
Andurand is running BlueGold Capital with Julian Reis, who previously headed U.S.-based Tudor Investment Corp.'s Singapore unit, and Dennis Crema, who worked as a gasoline trader at Geneva-based Vitol for 13 years.
Commodities have outperformed stocks as oil, industrial metals and wheat prices rallied to records this year. Investments in commodity hedge funds rose to $104 billion at the end of 2007 from $73 billion in the first seven months of last year, according to data from Singapore-based research company Eurekahedge.
The Standard & Poor's GSCI index of 24 commodities has risen 14 percent so far this year, adding to a 33 percent gain in 2007. In comparison, the Standard & Poor's 500 Index of stocks has fallen 11 percent in 2008, while U.S. Treasuries increased by 3.3 percent, according to Merrill Lynch & Co. indexes.
Before Vitol, Andurand was a trader at J. Aron, Goldman Sachs Group Inc.'s commodities unit, and Bank of America in Singapore.
`Flight to Oil'
Investors who are flocking to oil may be exacerbating the U.S. dollar's plunge and pushing oil prices to new highs, according to the president of Cambridge Energy Research Associates Inc.
``What you have normally is the flight to dollars as a refuge, but today instead there is a flight to oil,'' Daniel Yergin said in an interview in Washington on March 5. ``It reflects not only a weakening of the dollar, but the expectation of further weakening. Oil is a giant hedge against the dollar.''
The dollar touched a record low of $1.5395 per euro today. Crude oil futures traded in New York surged to a historic close of $105.47 a barrel yesterday. U.S. economic growth has slowed to 0.6 percent in the fourth quarter.
The worst U.S. housing market in more than a quarter of a century, fueled by $146 billion in losses by Wall Street banks, and a decelerating economy have contributed to a plunging dollar and pushed investors to buy oil, which has held its value better than the dollar. The result has been U.S. gasoline consumers being swept up in investors' flight to oil, Yergin said.
Source: Bloomberg| By Nesa Subrahmaniyan and Saijel Kishan
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