CEO of Legendary Trader Phibro Recommends Shorting Crude at $50

EghtesadOnline: It’s almost time to short this year’s crude rally, according to the new chief executive officer of Phibro LLC, the century-old commodities firm that was once the largest independent oil refiner in the U.S.

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25 August 2016

Simon Greenshields, who became Phibro’s CEO in January after his firm bought the merchant trader, recommended shorting benchmark West Texas Intermediate crude at $50 to $55 a barrel. Members of the Organization of the Petroleum Exporting Countries, meeting next month, probably won’t cut output, and Iran’s production is set to rise, Greenshields said in an interview Wednesday. WTI fell 2.8 percent to $46.77 on Wednesday, according to Bloomberg.

“The fundamentals remain bearish,” he said at Phibro’s headquarters in Stamford, Connecticut. “If we get a rally into the OPEC meeting through September, it’s an opportunity to get short. We are in a range-bound market. I’d rather sell rallies than buy dips.”

The storied trading house is known for churning out big names in the oil world including Astenbeck Capital Management LLC’s Andy Hall and Glencore founder Marc Rich, so Greenshields’ calls on oil carry some weight. The former co-head of Morgan Stanley’s commodities business has been working since January to revive and regain the clout that Phibro once had in markets as banks back out of the space.

In September, Phibro is starting a biofuels business with ex-Trafigura trader Jerome Lunot that will mark the merchant’s re-entry into the oil markets, Greenshields said. The company, betting on strong demand from low-carbon fuel policies established by states including California and Oregon, will hire four to five people to run the unit out of Switzerland and a couple more in China, he said.

Phibro was founded in 1901 and initially dealt in metals before growing to become, at one point, the world’s largest commodities trading house. The firm cemented its reputation as a heavyweight in oil markets in the 1970s when the Arab oil embargo sent prices surging.

New Reality

The company wound up in the spotlight during the financial crisis when, as a unit of Citigroup Inc., it awarded then-CEO Hall a $100 million compensation package, igniting controversy over pay at bailed-out banks. Occidental Petroluem Corp. bought the trading house in 2009 only to shut it five years later with Hall’s departure.

Greenshields’s purchase of Phibro -- which included its brand name, intellectual property, technological platform and customer database -- came just as traders were settling into a new reality of oil below $50 a barrel and natural gas near $2 per million British thermal units. Both markets have been plagued by a glut of U.S. shale supplies.

Greenshields said he sees the surplus of oil persisting through 2017, with U.S. crude stockpiles rising through the end of the year. Gains in production abroad will overwhelm any cutbacks in U.S. shale drilling, he said.

“What we know is that the U.S. producers are very responsive to the forward curve for WTI,” he said. “As the price goes up, they will bring more production up.”

‘Rosy’ on Gas

Greenshields said he still has a “rosy” long-term outlook for U.S. natural gas because of rising liquefied natural gas exports, shipments to Mexico and strong demand from petrochemical plants. He said he’d recommend buying gas at $2.25 to $2.50 per million British thermal units and shorting it at $3 to $3.50. The power-plant fuel traded at $2.796 on Wednesday.

Phibro is working on a deal on a smaller LNG project that could make a profit with gas at $2.25 to $2.50, Greenshields said. It’s also interested in buying power plants, and potentially re-purposing retired coal-fired ones, he said.