A worker wears a protective mask at an oil field north of Basra in Iraq.
Photo: essam al-sudani/ReutersThe crash in oil prices this month has been a brutal comeuppance for the energy world. But it has also generated profits for a handful of niche hedge-fund managers.
A common theme among the winners: hanging on to bearish bets even though markets had already moved down massively.
The novel coronavirus pandemic is eviscerating oil demand at the same time as Saudi Arabia and other major producers are flooding the market with new supply. Only once this millennium—in December 2008—has the global oil benchmark dropped more in a single week than it has tumbled in each of the past two.
London-based Arctic Blue Capital Ltd. benefited, with gains on one of its main funds of 8% this year through Monday.
“I don’t want to be the guy crying victory,” said Chief Investment Officer Jean-Jacques Duhot, citing tough stretches he has faced in the past. Mr. Duhot attributed his returns to computer-driven strategies that kept winning trades open after he was tempted to close them out.
Arctic Blue, which manages $150 million, is owned by H20 Asset Management, a unit of French bank Natixis. H20 has faced bruising losses in its noncommodity funds because of bets on bond yields rising. It declined to comment on its losses.
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Arctic Blue was luckier. It started to bet against oil prices several weeks before Russia’s deal with the Organization of the Petroleum Exporting Countries and other producers splintered on March 6. Instead of unwinding the trade at a profit when prices fell that Friday, the fund’s algorithm directed it to wait for a more extreme decline.
Over the weekend, Saudi Arabia slashed its official export prices and pledged to boost production, sparking the biggest crash in oil prices in a generation. When trading opened late Sunday, prices had fallen well below levels at which Arctic Blue was programmed to buy back crude it had sold short, taking profits.
Another trader, Pierre Andurand, began to bet against oil in February after seeing Covid-19 lock down swaths of the Chinese economy, according to a person familiar with his trading. He got walloped the last time prices cratered in late 2018, but was on the right side of the trade this time.
Mr. Andurand became vocal about the threat the pandemic posed to human life on Twitter and LinkedIn, calling on politicians to enforce lockdowns to contain the contagion. His short position helped London-based Andurand Capital Management LLP, previously known for bullish investments, recover all the losses it incurred in 2018 and 2019, the person said.
As of last week, the company’s main fund had gained more than 50% in March and a smaller fund that gives Mr. Andurand more leeway to take risk had more than doubled, the person said.
Rail wagons for oil cargo at a refinery in Tuapse, Russia.
Photo: Andrey Rudakov/Bloomberg NewsNew York-based Massar Capital Management LP, which has just under $250 million in assets under management, gained 8.6% in March, putting it on course for its best month since being founded in 2015. It targets more stable returns than those implied by overall moves in oil prices.
Chief Investment Officer Marwan Younes said Massar shorted oil and wagered that near-term futures would decline relative to contracts that expire at later dates, incentivizing traders and producers to put crude into storage.
A big question hanging over markets is whether any large investors got seriously hurt by the drop in oil prices.
One possible explanation for the lack of blowups so far is that the energy market was in a weak position well before the virus, said Richard Fullarton, founder of London-based Matilda Capital Management Ltd. One red flag was the way prices quickly fell back after rallying when critical Saudi energy facilities were attacked in September.
“It’s been obvious the industry’s been in dire straits,” he said. “Maybe that’s why we’re not hearing a huge number of horror stories.”
— David Hodari contributed to this article.
Write to Joe Wallace at Joe.Wallace@wsj.com
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