Citadel sees limited impact on energy demand from banking crisis
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.
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"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 hedge fund giant, which was based in Chicago but recently moved to Miami, 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)