As WTI Climbs 6% in 24 Hours, Noted Trader Warns of "Violent" Upward Reversal in Prices

Andy Hall is the latest expert to offer an outlook that runs contrary to conventional wisdom.

Violent is a word that has been used to describe the oil market's momentary increases and bigger declines over the past two months, and trader Andy Hall warns that more violence is coming – but this time with regards to a dramatic upward spiral.

In a message to investors of his Astenbeck Capital Management LLC hedge fund, Hall writes that global prices are about to take a "violent reversal" upwards due to stockpiles beginning to shrink in regions such as the U.S. and Venezuela.

He adds that an anticipated cooler winter will further escalate demand, and that short-sellers fixated on falling prices will only be able to resist the tide for so long: "Extreme positioning coupled with improving fundamentals should ultimately – and at potentially any time – result in a strong reversal."

While Hall's prognosis flies in the face of numerous reports of increasing, not decreasing stockpiles, and weakening, not strengthening demand, Hall's reputation is that of the "god of crude oil trading", and in a career that began in the 1970s by trading for BP Plc, he most recently benefited by betting on the run-up and eventual crash of crude prices.

In his message, Hall calls comparison between this year's market performance and that of 2015 "overblown," pointing out that global commercial oil inventories grew by 1.5 million barrels per day in the first half of last year, and this year they've increased by just 400,000 barrels.

Hall insists that supplies are shrinking despite a "miserable month" for oil in July, and that this is the catalyst for the reversal upward. 

In reporting Hall's comments that coincide with a 6 percent-plus rise in West Texas Intermediary in 24 hours, Zero Hedge draws attention to "a major case" of déjà vu: "last August/September, oil prices exploded 25 percent in just a few days as options markets were manipulated (chatter at the time was Hall faced big losses and used call vol to squeeze a heavily short positioned market) to create the most violent reversal ever in crude."

A more typical market scenario was offered earlier this week by Matt Smith, director of commodity research at ClipperData,who, in reporting on the increasing number of unwanted crude cargoes globally, sees oil "going lower from here: we have this glut here in the U.S. not only in crude but for products, as well; we're actually at record inventories for the two of those."