For the oil-trading community, the fall of hedge fund manager Andy Hall signalled a heavy blow, but while commodity funds continue to shutter their doors, some are finding other ways to make money, including trading refining margins and calendar spreads. Commodity hedge funds have dwindled in recent years as oil prices slumped, leaving only a handful of larger players, including Hall, who ran the Astenbeck Capital Management fund until deciding to close it following losses this year.
A number of funds bet heavily on an oil rally early in the year, boosting long futures positions to a record in late February, before oil went into a prolonged slump as global supply remained elevated despite cuts from Opec. Many commodity funds have struggled this year as oil stagnated and volatility fell, hurting bets on large back-and-forth fluctuations. According to Credit Suisse, CTA funds - which concentrate on futures - were down 2.8 percent in 2017 through the end of July, while Hedge Fund Research's commodity hedge fund index was down 0.9 percent through the end of July.
Betting on other spreads has worked better with refining margins increasing sharply this year, as heavy demand for distillates has boosted those margins by more than 50 percent in the last two months. After remaining depressed for most of 2016, gasoline margins have also rebounded. US refining margins rallied to the highest in nearly two years early this month.
"Refining margins are healthy worldwide and global demand is healthy," said RCMA Asset Management Chairman Doug King, whose Merchant Commodity Fund runs some $190 million in commodities. That fund is down 12 percent on the year, however. Oil dropped sharply in March, bringing down Hall along with others including Andurand Commodities Fund, which through the end of July had lost more than 15 percent, according to a source close to the firm.
Those funds did not respond to request for comment. "Funds started the year at record length in futures," said Matthew Perry, partner at energy-focused hedge fund Kronenberg Capital Advisors LLC. "That turned out to be devastating for most traders." Hall's decline was most surprising, according to traders, given decades of history in the market.