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Andy Hall – The trader received a $100 million bonus during the Financial Crisis

/You can read more articles about Great Traders here: https://www.varchev.com/great-traders .htm. /

Andy Hall, during a nearly 45-year career in oil trading, amassed a fortune from the biggest bets in the market’s history. He played a central role in creating the modern oil trading industry, first at BP, then for three decades at commodities trader Phibro. There, he earned a $100 million bonus during the financial crisis — before moving on to run one of the biggest oil hedge funds.

One of his biggest deals earned him the nickname “God” in the oil and energy markets, in 1990, when Saddam Hussein was preparing to roll his tanks into Kuwait.

Oil prices fell, creating tensions among OPEC members including Iraq and Kuwait. At Phibro, Mr. Hall was busy buying the low price of oil to introduce a trading method that has since become commonplace: loading tankers at sea to store crude while locking in higher prices for later delivery in the futures market.

“You have to identify the point very well to get in, but then you also have to identify the point to get out.” – Andy Hall

Although there were numerous other profitable deals it was to be another 15 years before Mr. Hall really rose to fame.

At the turn of the century, Phibro became a unit of Citigroup, a new breed of megabank at the time dominating Wall Street. The opening of China’s economy has turned 1.4 billion people into consumers, with hundreds of millions more in the developing world scrambling to buy cars and air conditioners. At the same time, a decade of relatively low oil prices has starved the energy industry of investment, and it was unclear how new demand would be met.

Mr Hall has again made a big bet, buying hundreds of millions of dollars worth of long-term oil contracts, believing the price must eventually rise. This decision exceeded even his wildest expectations. Between 2003 and the summer of 2008, the price of oil jumped from $25 a barrel to an all-time high of $147.

Mr Hall says he stuck with the trade until $140 a barrel, cashing in just as the full extent of the financial crisis became clear.

“You have to identify the point very well to get in, but then you also have to identify the point to get out.” – Andy Hall

At the height of the crisis, however, his own bank was hit harder than almost any other, requiring a $45 billion bailout from the US government.

Andy Hall and Phibro continued to profit by buying back when oil bottomed near $30 a barrel in early 2009 and then enjoyed another explosive year as crude rebounded to nearly $80 a barrel.

But this success, at a time when faith in the big banks has been shaken to the core, has brought problems. Fat bankers have been on the public side and when a $100 million payday for Mr. Hall was reported, it was met with fury. Kenneth Feinberg, the “salary czar” of the Obama administration, was called upon to intervene.

“The problem for them was that I had a contract with Citigroup and there was no obvious way for Citigroup to break it, and I think Ken Feinberg was smart enough to understand that,” Mr. Hall says.

“So he came up with an elegant solution to the problem, which was, “Okay, well, Mr. Hall can get his money because he’s contractually entitled to it, but you, Citigroup, are going to have to get rid of Mr. Hall and the company he runs.”

Citi sold Phibro to Occidental Petroleum in 2010, a move that hurt the freedom Hall enjoyed.

At the same time, Mr. Hall ran a hedge fund for Blackstone that eventually became Astenbeck Capital, turning it into a $4 billion behemoth. But in 2017, Hall shocked the oil market by finally ending its oil trading business. Oil prices have remained low under the stubborn weight of the US shale revolution, while markets have become more volatile with the emergence of a new breed of algorithmic and high-frequency traders.

The rise of electric cars and the shift to renewable energy has also changed his mind. This triple rise in technology changed his long-term thinking.

Oil then rallied more than 50 percent over the next year, prompting many to joke – including Mr Hall himself – that his capitulation had finally marked the bottom of the market.

/You can read more articles about Great Traders here: https://www.varchev.com/great-traders .htm. /


 Head of Trading Dimitar Kalapov

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