(Reuters) - Oil-focused hedge fund manager Pierre Andurand said on Thursday that he expected benchmark Brent crude to drop to about $50 a barrel by year-end due to higher production and market volatility.
“I don’t think the market is ready to see $80 to $90 oil in the short term,” the manager of the $450 million London-based Andurand Capital told Reuters ahead of his speech at an industry conference in New York on the direction of oil.
Andurand said oil’s rebound from a seven-month rout has been overdone as investors have bet on U.S. production cuts, which he sees as temporary.
The decline, which started in June, was largely due to lower-than-expected demand growth, fewer supply disruptions with the recovery of Libyan production, and the move by Saudi Arabia and other OPEC members to not cut output in order to protect market share, Andurand said.
Andurand said demand would not keep up with anticipated increases in OPEC and Saudi output.
After being halved during that selloff, crude futures have risen 20 percent to 25 percent over the past six weeks on signs that increasing demand ahead of the peak U.S. driving season could ease a supply glut.
Andurand said he did not think the market would rise much further.
“I think prices will soon go back down,” he said. “I don’t think it will be a V-shaped recovery. It will be a W-shaped recovery.”
He said the market had rebounded mainly on the sharp reduction in the number of rigs drilling for oil in the United States and the tens of billions of dollars in capital spending cuts by producing companies.
“People are now focusing very much on the U.S.,”
Andurand said. “A lot of people missed the move down and don’t want to miss the move up.”
Andurand said he expected U.S. rig counts to increase in the next two months as companies decide oil prices will allow them to make money doing so.
“And I think U.S. production will start going up again in the next three to four months,” he added.
He said his fund was “pretty much” flat on its oil exposure since it was “a bit premature to buy oil on the basis on the rig count and capex cuts.”
On Thursday, Brent was almost flat at $66.72 a barrel at 10:34 a.m. EDT (1434 GMT), having risen from a nearly six-year low of $45.19 in January.
U.S. crude was down nearly 1 percent at $59.99 a barrel after hitting 2009 lows of $42.03 in March.
Reporting by Barani Krishnan; Editing by Jeffrey Benkoe and Lisa Von Ahn