Over a Barrel
The pandemic killed demand for oil and gas, leaving the world vulnerable to Vladimir Putin’s supply-side punch. The upside? Widespread shortages and $8-a-gallon gasoline will finally force meaningful investment not just in alternatives like solar and wind but also pariahs like nuclear and wood.
The pandemic killed demand for oil and gas,
LEAVING THE WORLD VULNERABLE TO VLADIMIR PUTIN’S SUPPLY-SIDE PUNCH. THE UPSIDE? WIDESPREAD SHORTAGES AND $8-A-GALLON GASOLINE WILL FINALLY FORCE MEANINGFUL INVESTMENT IN ALTERNATIVES AND EVEN PARIAHS LIKE NUCLEAR AND WOOD.
The French-born, Oxford-trained mathematician had studied the early medical reports out of Wuhan, China, and was so sure of this scenario that his hedge funds, now with $1.7 billion under management, had taken big short positions in crude oil futures. By the time prices fell below zero that April 20, Andurand Capital’s funds had banked gains ranging from 60% to 155%.
In early February of this year, the trader made another attention-grabbing call: Crude oil would surge in 2022 to $150 a barrel as post-pandemic demand, goosed by massive central bank stimulus, collided with years of declining investment in fossil fuels—and underinvestment in alternatives. And that was before Vladimir Putin delivered a supply-side sucker punch with his February 24 invasion of Ukraine. Andurand, whose biggest fund is up another 112% year to date through April, now expects oil prices to go even higher, with $200 a barrel possible—in coastal centers, that translates to $8 a gallon at the pump. “Putin decided to invade now because the market was tight,” he says.
“The war accelerated where I felt we were headed: to a shortage. It’s going to get worse from here,” echoes Fort Worth, Texas, billionaire John Goff, chairman of Crescent Energy. He’s been scooping up depressed oil assets since 2019. “The world is woefully underinvested, energy transition policies are naive and demand has yet to peak,” he adds. “I’m all for green energy, but we need a real plan.”
Skeptics might point out that as of late May, a full three months after Putin’s invasion, oil futures were still bobbing around $110 a barrel. But that’s only because China’s strict Covid lockdowns have temporarily depressed demand, and America is releasing a million barrels daily from its strategic reserves. Realistically, the only thing that can save the world from $200-a-barrel oil is a nasty recession, which is hardly good news.
But there’s another, more hopeful way to look at the global energy crisis: It could prompt those with the most capital to fast-track creative solutions and force politicians to get out of the way. That means everything from greenlighting new nuclear plant designs to building better batteries and grids for storing and distributing solar and wind energy. There’s even a place for quick fixes like burning wood pellets instead of coal.
This would represent a reversal from recent years, during which fossil fuel investment has cratered, Germany and Japan have shuttered nuclear plants and not-in-my-backyard activists have blocked hundreds of wind farms in the U.S. alone.
“This decade is going to be one that is structurally bullish for the energy market. There’s more discipline today, plus you’re trying to make up for seven years of underinvestment,” says John Arnold, who retired from active energy trading a decade ago at just 38. In recent years, the billionaire philanthropist has put money into solar farms, nuclear fusion, deep-water oil production platforms and more. He’s particularly keen to see a regulatory rewrite making it easier to win approval for energy grids linking urban areas with rural places where wind and solar energy are generated. “If we really feel like climate change is an existential threat to society, then we need to act like it. You can’t give everyone a veto on every project.”
It was February 2020, travel restrictions hadn’t yet hit Europe, and the big shots of oil were gathered in London for International Petroleum Week. At an invitation-only dinner, commodities trader Pierre Andurand offered a startling prediction: As Covid-19 spread, countries would lock down, storage tanks would fill up and the price of oil would go to zero.