Astenbeck Capital's Andrew Hall On Oil: An Industry That Couldn't Function At $50 Doesn't Work Under $40

Andrew Hall, Chairman and CEO of Astenbeck Capital Management, recently wrote a letter to their investors regarding the weakness in commodities. In his overall message his firm believes that, "the shorter term headwinds are ultimately trumped by the longer term outlook for prices which remains firmly to the upside: an industry that couldn't function at $50 certainly can't function with prices below $40." Andrew Hall stated 3 key reasons why oil prices have decreased to current levels and may continue to stay there for the near term: 1. Production OPEC producers are continuing to produce at close to their maximum capacity. Astenbeck notes that OPEC has stated that producers will continue to produce at high levels due to concerns over losses in market share if production is decreased. 2. Weather Warm weather in North America has reduced demand for distillate used as heating fuel. While weather is hard to predict going forward, Hall notes that the decrease in demand has led to increasing inventories of oil. 3. Iran Politics A greater likelihood of lifting Iran's sanctions could lead to increasing oil inventories and further decrease prices. Astenbeck believes that the earlier lifting of sanctions could add on average 125,000 bpd. In 2016 an uncertain macro-economic climate and strengthening US dollar could further weigh on oil prices. Andrew Hall also notes that while current prices are too low to be sustainable, the supply response is taking longer than expected. However, Hall and his team believes that for the oil industry to function properly prices must increase in 2016. United States Oil Fund LP (ETF) which tracks the change in oil prices is currently trading at $9.23, down 5.82 percent.