• 4 minutes Trump will meet with executives in the energy industry to discuss the impact of COVID-19
  • 8 minutes Charts of COVID-19 Fatality Rate by Age and Sex
  • 11 minutes Why Trump Is Right to Re-Open the Economy
  • 13 minutes Its going to be an oil bloodbath
  • 1 hour US Shale Resilience: Oil Industry Experts Say Shale Will Rise Again
  • 2 hours While China was covering up Covid-19 it went on an international buying spree for ventilators and masks. From Jan 7th until the end of February China bought 2.2 Billion masks !
  • 36 mins Ten days ago Trump sent New York Hydroxychloroquine. Being administered to infected. Covid deaths dropped last few days. Fewer on ventilators. Hydroxychloroquine "Cause and Effect" ?
  • 6 hours Marine based energy generation
  • 2 hours China Takes Axe To Alternative Energy Funding, Slashing Subsidies For Solar And Wind
  • 4 hours Today 127 new cases in US, 99 in China, 778 in Italy
  • 10 hours Real Death Toll In CCP Virus May Be 12X Official Toll
  • 20 hours What If ‘We’d Adopted A More Conventional Response To This Epidemic?’
  • 1 day Trafigura CEO Weir says, "We will see 30% to 35% drop in demand". That amounts to 35mm bbls/day glut ! OPEC+ 10 mm cut won't fix it. It's a DEMAND problem.
  • 40 mins Apple to Bypass Internet and Beam Directly to Phones
  • 6 hours Which producers will shut in first?
  • 16 hours TRUMP pushing Hydroxychloroquine + Zpak therapy forward despite FDA conservative approach. As he reasons, "What have we got to lose ?"
Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. 

More Info

Premium Content

Are Energy Hedge Funds Going Extinct?

Last year’s heightened volatility in energy markets—typically a welcome background for fund managers to make profitable trades—proved to be less than stellar news for energy-focused funds.

Energy-exposed funds have been suffering since 2016—first because of subdued volatility, then because of increased volatility. But most of all—because of bets on crude oil and natural gas gone wrong.

The wrong-side bets on commodity prices resulted in closures of energy-focused funds, with few replacements entering the commodity fund business, so the number of active energy funds dropped last year to the lowest since 2010.

Some high-profile fund managers have shut down their oil funds in recent years. Legendary oil trader Andy Hall—who was nicknamed oil ‘God’ for profitably predicting a bull run in oil prices in the past—continued to hold his bullish view even after the 2014 oil price crash. But in the summer of 2017, he closed his main fund Astenbeck after the fund posted double-digit losses.

In early 2018, oilman and investment manager T. Boone Pickens called it quits with the energy-focused fund he had managed for the past two decades—BP Capital—citing deteriorating health.

Commodities hedge funds are undergoing “an extinction event. Just about everyone has gone out of business,” David Mooney of Casement Capital told the Financial Times in April 2018.

Speaking to Reuters last week, Mooney said: “We had about 16 large hedge funds trading natural gas in Houston a few years ago…That number is now reduced to a small number of managers.” Related: What’s Behind Oil’s Slow Flash Crash?

According to data from hedge funds industry tracker Eurekahedge, cited by Reuters, the number of energy-exposed funds dropped to 738 by September 2018 from 836 in 2016—the lowest number of active energy funds since 2010. The number of energy funds exclusively focused on crude oil or natural gas fell in the same period to 179 from 194.

Experts and fund managers expect energy funds’ performance to continue to be challenged going forward, because investors withdraw money from such funds as they increasingly see commodities as an unsafe bet or place in which to pour their money. 

Last year was not a good year for many energy-focused funds, because by mid-year, they had bet on higher oil prices and lower natural gas prices.

Beginning in the fourth quarter, those bets turned out very, very wrong.

Oil prices started sliding in October and lost 40 percent through December, as fears of zero Iranian oil supply due to the U.S. sanctions flipped into fears of oversupply with U.S. production roaring to records and Saudi Arabia and Russia pro-reactively boosting supply to offset what was expected to be a severe drop in Iranian barrels.

Natural gas prices, on the other hand, jumped to $4.80 per MMBtu in mid-November. Storage at a 15-year low, an unusually cold fall, production freezes, and high exports from Corpus Christi combined to create a perfect storm that sent U.S. natural gas prices to their highest level since the polar vortex of 2014.

According to the Hedge Fund Research (HFRI) Macro index, cited by Reuters, macro hedge funds with strategies such as bets on oil prices—were among those with the poorest performance last year. They dropped 3.6 percent, the worst yearly performance since 2011, when macro funds fell 4.2 percent.  Related: This Is How Much Each OPEC+ Member Needs To Cut

Some U.S. mutual funds focused on energy were the worst performers last year, according to Morningstar’s ranking of performance of funds with more than US$100 million in assets, reported by the Financial Times.

As a whole in the hedge fund industry, investors redeemed an estimated US$22.5 billion—or 0.7 percent of industry capital—from hedge funds in the fourth quarter last year, the largest quarterly outflow since the third quarter of 2016, according to Hedge Fund Research. The Q4 outflow brought the full-year outflow to US$34 billion—some 1 percent of industry capital—and decreased total hedge fund capital to US$3.11 trillion in Q4, down from the record US$3.24 trillion of the previous quarter, Hedge Fund Research said.

“While the overall investor flows and performance trends were negative, it is likely that discriminating institutional investors which experienced or observed areas of strong performance through the most difficult equity and commodity trading environment in a decade will factor these positive dynamics into portfolio allocations for 2019,” said Kenneth J. Heinz, President of HFR.

So it’s not all doom and gloom for the hedge funds as a whole. Quite a few of them—those that were short-selling—made a lot of money last year, Bloomberg News’ Nishant Kumar said earlier this month.

Yet, energy-focused funds may still struggle going forward, industry experts say.

By Tsvetana Paraskova for Oilprice.com

More Top Reads From Oilprice.com:


Download The Free Oilprice App Today

Back to homepage






Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News