Oil's big rebound in the first half of the year was a squandered opportunity for most hedge funds with positions in crude, and a surge in volatility is likely to make it harder for them to call the market in the second half.
The majority of hedge funds in the oil universe posted sparse returns in the six months to June even as crude rebounded from 12-year lows to post a 30 percent gain.
Rather than extend risk through more bets on oil, some fund managers are cutting exposure to prevent further losses as volatility rises again on concerns about supply and economic demand.
"It's far less clear a position than it was a year ago when the oil market had been clearly trending downwards," said Chris Reeve, director of product management at Aspect Capital, a $6.4 billion trend-following hedge fund in London.
Aspect's flagship program, which trades oil among other commodities, was down 2.5 percent through June, based on data seen by Reuters. Last year, it gained nearly 8 percent, helped by a bearish bet on crude.
The average hedge fund with an energy-biased strategy rose by just 0.4 percent in the five months through May, after losing 1 percent in 2015, according to figures compiled by Chicago-based Hedge Fund Research. June data isn't available yet.
Trend-following energy funds - also known as commodity trading advisor funds, or CTAs - haven't done much better.
A group of 13 such funds rose 0.6 percent through May, versus an 8 percent rise last year, according to data compiled for Reuters by hedge fund database BarclayHedge.
The second half could be as difficult for oil-focused funds. After touching a 2016 high of nearly $53 a barrel, oil has been trading in a choppy fashion, with volatility of late due to a murky supply-demand picture for crude and unsure economic outlook after Britain's exit from the European Union.
Oil's rebound this year was fuelled by supply outages from Canada to Nigeria that, for a time, created the perception that a two-year-old supply glut might be easing. Those supplies are returning, boosting output within and outside Opec.
Hedge funds' bullish bets on US crude hit a near four-month low earlier this week, data showed.
Pierre Andurand, another notable oil investor, who is up double digits this year, in a late June letter to his investors cited concerns over Brexit among other factors that could cause more volatility. Andurand, who runs the $1.1 billion London-based Andurand Capital Management, expects crude to hit $65 a barrel or more by December. His fund gained 11 percent through June, data showed. Andurand Capital declined comment in an email to Reuters.
Oil's volatility hit 4-month highs on Thursday as crude prices plunged 5 percent on disappointing US inventory data.
BBL Commodities Value Fund in New York is among the few that may benefit from such volatility. The $500 million energy-focused hedge fund gained 13 percent in the first half, exploiting the relative value, or price differentials between crude and other petroleum products. Last year, BBL lost more than 10 percent.