Texan hedge fund manager J. Kyle Bass, the founder of $1.6 billion Dallas-based Hayman Capital, says there’s a “massive opportunity in energy.”
Like many investors in 2015, Bass had been predicting a rebound in oil prices in 2015. That didn’t happen. Oil prices continued to slide, falling below $35 per barrel on December 18, making it one of Hayman’s worst years in a decade.
“My views are dogmatic about the supply and demand in energy and that’s cost me,” Bass said in an interview on “Wall Street Week” that aired on Sunday.
He is sticking with his bet on the energy sector, however, because he thinks that there’s new demand for crude every year and global GDP “will still be positive.”
“In energy, I just believe that, first of all, the margin of safety for the globe is the smallest it’s ever been in energy — so global demand is 96 million barrels per day, the highest it’s ever been, and let’s say incremental supply capacity, let’s say swing capacity, is at the lowest point as a percentage of that, about a million and a half barrels a day,” Bass said.
He pointed out that US production has only shaved off about 400,000 barrels per day, while OPEC production has continued to move higher.
He said he thinks that right now there’s a surplus of 600,000 to 700,000 barrels per day.
“You have to realise that the US added a million barrels a day five years in a row, but it took $100 crude for us to do that. We were the marginal swing producer for the world. But now we’re going to go down a million barrels a day, I think, in the next 12 months. So, we’re going to go from a glut to all of a sudden a deficit, and the world’s not ready for a deficit.”
If you’re going to allocate capital for the next three to five years you should do it now. He recommended buying in the next six months.
Bass became famous in 2007 for his big short bet on subprime housing bonds.