Citadel sees limited impact on energy demand from banking crisis

Citadel Income Fund

20/03/2023 14:15

By Julia Payne
       LAUSANNE, Switzerland, March 20 (Reuters) - U.S. hedge
fund Citadel expects a tighter credit environment following the
latest banking crisis but so far the economic decline is not
enough to plunge commodities into the abyss, its head of
commodities told Reuters. 
    Banking stocks and bonds plummeted on Monday and oil was at
15-month lows as the hit to investors from UBS Group's
state-backed takeover of Credit Suisse fanned concerns about the
health of the global financial sector. 
    "The immediate response will be a tightening of regulations
and higher capital ratios, which will reduce the velocity of
lending," Sebastian Barrack, head of commodities at Citadel,
said on the sidelines of Financial Times Global Commodities
Summit.
    "The risk is not systemic at this point. A lot of lending in
commodities is collateralised so there won't be a major impact."
    The Chicago-based hedge fund giant manages roughly $60
billion in assets.
    Barrack said global markets are a long way from a recession
like that in 2007-2008, adding that the loss of 1-2% to global
GDP will not have a material impact on oil demand that he
expects to rebound in the second half of this year. 
    "The depth of the recession is more important. We need to
have a 5-6% global GDP cut to have a major impact on
commodities," he said. 
    Hedge funds and trading firms like Trafigura and Vitol were
making record profits in energy markets last year on the back of
the extreme price jumps and dislocations caused by Russia's
invasion of Ukraine, which aggravated underlying tight gas
markets. 
    Citadel, run by billionaire Ken Griffin, ended 2022 with a
$16 billion gain last year, the biggest profit ever earned by a
hedge fund.
    Its returns to investors were up 38.1% last year for its
flagship multi-strategy fund, a source familiar with the matter
said, with four out of five strategies having had their best
ever years. The commodities arm holds positions in oil, power,
natural gas and agriculture. 
    The Organisation of Petroleum Exporting Countries and its
allies (OPEC+) agreed a 2 million barrel-per-day cut in October
last year that took effect in November and will continue until
December 2023. 
    "The macro backdrop remains an unanswered question as OPEC
assesses impact on demand. The fact that they are not yet
cutting supply demonstrates a quiet level of confidence," he
said. 

 (Reporting by Julia Payne, Editing by Louise Heavens)
 ((julia.payne@thomsonreuters.com; +44 207 542 1836;))