Andy Hall, a British-born oil trader based outside New York, personally pocketed over $100m last year. That was his reward for astutely predicting in 2003 that oil prices would soar towards $200 a barrel. Just before prices hit $147 in July 2008, however, Hall bailed out. The 58-year-old ex-BP trader feared the consequences once Manhattan’s banks began crashing. Record oil prices, he foresaw, were tipping the world into recession. Yet, as oil tumbled towards $32, the global economic crisis sparked Hall’s appetite for more profits. Eagerly, he began speculating in New York and London that prices would eventually boomerang back towards $200. So far they are hovering around $70, but Hall is convinced that once the recovery begins and the demand for oil increases, oil prices and his profits will rocket up again.
Named by rivals as the “God of oil traders”, Hall is an enigmatic, quietly-spoken art collector who, while shunning the spotlight, abides by the adage: “Oil traders work in a whorehouse so don’t try to be an angel in this business.” In gearing up for another coup, Hall acknowledges that over the years he has attracted both praise and loathing for perfecting the “squeeze”– causing oil prices to change. “I’m basically interested in one thing – business,” he said. “I come in every day to make money.”
Producing sufficient oil would keep prices down and sustain the world’s economic recovery but that scenario offends both Hall and some oil producers. Their scenario for frenzied markets is based upon an unholy alliance, although they disagree about why prices will rise.
Hall is an “oil-peakist”. Supplies, he believes, have passed their peak and the world is running out. The major oil producers – like Saudi Arabia, Russia, Venezuela and the US – know the opposite. Unlike the oil-peakists’ estimate that the world’s total oil reserves were about 2 trillion barrels and we have consumed over half, the producers estimate that up to 11 trillion barrels remain under the earth’s surface. New technologies to extract oil from beneath the sea and to suck more oil from old wells repeatedly smash the oil-peakists’ doomladen message. The original oil-peakists could never have imagined drilling wells 6 miles beneath the sea bed or of squeezing oil out of rocks using a horizontal drill in a 10 mile circumference from a single well. Yet, despite the technological revolution, some reputable international oil thinktanks predict an imminent oil shortage and prices again heading towards $200. That forecast is mood music for Hall and is welcomed by some oil producers.
Putin’s Russia and Chávez’s Venezuala stand to pocket billions of dollars once oil prices return to last year’s dizzy heights. They want to earn more money from less oil. Th e risk of plunging the world back into recession barely figures in their calculations, and their conspiracy is aided by the folly of major western oil companies.
Insensitive and condescending, BP, Shell, ExxonMobil and the other giants which dominate the sale of petrol in the high street have been reduced to minnows. Thirty-five years ago, the so-called seven sisters controlled about 80% of the world’s oil supplies. Now the five major oil companies that remain control barely 5%. Since 1945, the oil companies successively failed to gain the trust of the leaders of most of the oil-producing states and secure access to their oil fields. Nationalism, self-interest and stupidity barred the oil companies’ admission to vast deposits. The conundrum is fatal. By denying themselves the oil companies’ efficient management and technology, Russia, Venezuela and Mexico are now producing less oil than 10 years ago – although all three desperately need the extra revenue.
By strangling supplies, those governments will hope to earn bigger profits by producing less oil. The equation is startling. Producing oil in those traditional countries costs between $3 and $9 a barrel and, the governments hope, will sell for over $100. Impatient with the lengthy timescale involved in producing new oil, those politicians contemplate permanent high prices. Hall and his rival oil traders gleefully wait.
“Greed” will not be discussed at next week’s Oil & Money conference in London. Not surprisingly, the agenda of the annual extravaganza, which attracts 1,000 of the world’s most influential oil aficionados, circumvents the embarrassment that corrupt and inefficient national oil companies are allowing exploration and production to diminish. Confusion will stifle rational argument.
Investment in new fields is low and the rapacious encroachment by China into the west’s traditional territories, especially in Africa, has created new instability. In Nigeria, Ghana and Angola, the Chinese are outbidding western oil companies for access to oil fields. Once the recovery begins, Chinese demand will accelerate price rises, guaranteeing another financial killing for Andy Hall.
Leadership and consensus could solve these problems, but competition between producers, oil companies, governments and traders is preventing anyone thinking beyond profits. “We’re not here to help others,” Hall once said. Either world leaders agree to squeeze more oil out of the rocks or traders will exploit shortages to squeeze the markets.
Tom Bower, the author of Broken Dreams: Vanity, Greed and the Souring of British Football.