Oil veteran lifts lid on the art of price forecasts

When Gary Ross heard reports of an oil tanker accident off the coast of Alaska, he picked up the phone.

“I call the pilot of the port of Valdez and basically asked him, ‘Can you tell me what’s going on?’,” the Brooklyn-born founder of Pira Energy says of the Exxon Valdez disaster.

“He said, ‘There’s so much oil, I’ve never seen anything like it in my life — miles and miles of oil!’,” said Mr Ross, mimicking the panicked voice on the other end of the line.

Mr Ross breaks into a broad grin. “I said, ‘Thank you very much’.”

As 11m gallons of crude seeped out of the Exxon Valdez’s shattered hull, he began calling his clients. “I told them: the price is going to go up.”

They would be some of the first to hear about the magnitude of the 1989 disaster, which eventually coated 1,300 miles of once-pristine Alaskan coastline, giving them the chance to place early bets on rising prices.

The ruthless pursuit of information defines Mr Ross’s near 50-year career in the oil industry, which made him one of the most influential oil analysts of his generation.

For Andy Hall, a star oil trader at Phibro and Citigroup, who relied on Mr Ross’s advice throughout his career, the Pira boss has “unparalleled experience . . . strong convictions . . . supported by an extraordinary roster of industry connections”.

Gary Ross (middle) talks to Scott Sheffield, CEO of Pioneer Natural Resources

Pira would end up with 550 of the world’s top oil producers and traders as clients. Mr Ross’s network of contacts includes Stanley Druckenmiller, the US hedge fund manager who helped George Soros “break” the Bank of England; Scott Sheffield, T Boone Pickens and John Hess, titans of the US oil industry; and a roster of former and current government officials spanning the US, Russia and Saudi Arabia.

He would become a trusted friend and confidant to all sides, sometimes acting as a peacemaker in an industry beset by rivalries and mistrust. And along the way he would glean the information that would help his clients, and him, become rich.

The Pira business was ultimately sold to S&P Global Platts in 2016 for an undisclosed sum, one of the few things Mr Ross will not reveal, beyond saying it made him “tremendously” wealthy. He now lives in a luxury apartment block in New York City, with floor-to-ceiling views over Central Park and lower Manhattan. Former General Electric chief executive Jack Welch once lived in the penthouse.

While it is more than a year since Mr Ross left Pira, he remains intimately involved in the market with his own hedge fund Black Gold Investors LLC, where his son is the top trader. Now, aged 71, he wants to open up about the story behind some of the oil market’s most pivotal moments of recent decades.

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Vodka and an Obama toast with Igor Sechin

In late 2008, when the world was in the grip of the financial crisis, Mr Ross was encouraged by Saudi Arabia to persuade Russia to co-operate in stabilising oil prices.

Igor Sechin, one of Russian President Vladimir Putin’s closest allies, who has served as the country’s deputy prime minister, energy minister, and latterly chief executive of its state-backed oil champion, Rosneft, was the key person to get on board. In Russia, his detractors have nicknamed Mr Sechin “Darth Vader” for his menacing demeanour and history of rivals coming unstuck.

Mr Ross was summoned to dinner with Mr Sechin in Vienna on the eve of an Opec meeting in March 2009, when the cartel was trying to make overtures to Russia after oil prices had collapsed from above $145 a barrel to below $30 a barrel in 8 months.

“He had a translator and a bottle of vodka was on the table. It was just the two of us. And I started the meeting by pointing my finger at him saying, ‘I’m going to tell you not what you want to hear, but what you have to hear’. And he pointed his finger at me and said, ‘I’m going to tell you the same thing’. I got a better appreciation of who he was later on. I was a little concerned.”

Igor Sechin continues to oppose Russia’s co-operation with Opec © Reuters

Mr Ross gave a presentation to Mr Sechin entitled “Protecting Black Gold”, arguing that Russia would be foolish not to join Saudi Arabia in working to prop up the price. By Mr Ross’s account it was a good-natured affair with lots of drinking. The member of Mr Putin’s inner circle even offered a toast to the election of President Barack Obama, Mr Ross says.

But Mr Sechin was not sold on the plan.

“He told me his vision,” Mr Ross says. “He said we [Russia] would never co-operate with Opec, they can’t take the pain, we can, they will always cut, we will never have to cut. They will always cut before we have to.”

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A spokesman for Mr Sechin said Mr Ross’s recollection was “a cheap fable”. “First of all, Igor Ivanovich Sechin does not drink vodka. All the other so-called statements in this anecdote are of the same kind.”

Mr Sechin, in his role as Rosneft chief executive, has continued to oppose Russia’s co-operation with Opec to this day, even as Riyadh and Moscow have become more closely aligned over the past three years.

Saudi plan for full-scale price war goes awry

In 2014, when the oil market had been trading above $100 a barrel for much of the past six years, Mr Ross went a long way to cementing his reputation as the best-connected analyst in the oil industry.

The rise of the US shale industry had unnerved Saudi Arabia, which feared this new source of supplies would force them into an endless cycle of production cuts to prop up the price. Saudi Arabian energy minister Ali al-Naimi started considering a different strategy — strangle US shale by raising the kingdom’s own output.

Mr Naimi had long sought Mr Ross’s advice, working together in the 1990s to determine the relationship between global oil inventories and prices, helping guide Opec’s production decisions.

Mr Ross was never paid for his work but found ways to profit. “[The Saudis] wanted you to keep it absolutely confidential but they had to know that I wasn’t. I was using it for my business purposes.”

In early 2014 Mr Ross warned Saudi Arabia’s oil advisers that Mr Naimi’s plan for a full-scale price war would prove more damaging to the kingdom than its rivals. But Mr Naimi would not be swayed. By August, Mr Ross was advising clients that prices were going to fall.

Gary Ross: a reputation based on making the right callsBrent oil price ($ per barrel, real terms)

Crude fell from more than $100 a barrel in August 2014 to below $50 a barrel five months later. Those who knew what was coming — including Mr Ross’s clients — were able to make a fortune shorting the market or hedging their production.

Two years later Saudi Arabia started to heed Mr Ross’s advice. “When I was there in January 2016, I said, ‘The price lows are not hitting yet — the prices are going to go to $25’, and their jaws dropped,” says Mr Ross.

By the end of that year Saudi Arabia had changed course. Mr Naimi had been removed as Saudi energy ministry and the kingdom was back to trying to get Russia on board. Only this time, with a new relationship between Mr Putin and Crown Prince Mohammed bin Salman of Saudi Arabia, it worked, and crude rose back above $60.

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Psychology beats maths in predicting the market

There are some in the industry that view Mr Ross as a blowhard, with his thick Brooklyn accent, power suits and a street fighter’s approach to debate. But Mr Ross has rarely let detractors bother him.

Ed Morse, a former White House energy-adviser who has carved out a lucrative career as a Wall Street energy analyst, once complained Mr Ross has an inability to ever admit he is wrong. Mr Morse, says Mr Ross, is “a good friend of mine. Jealous, but a good friend of mine.”

“To be a consultant you’ve got to be confident,” Mr Ross says. “You’re selling confidence to people investing millions or billions of dollars. But you’ve got to be right too.”

He reels off the dozens of data points he looks at every day, but says it boils down to one thing. “What is the demand for inventory? It’s in the mind of everyone who buys and sells oil . . . And that’s driven by market psychology,” Mr Ross says.

Mr Ross once recruited his brother, who has a PhD in applied mathematics from Stanford University, to help him analyse the market. “I said, ‘can you help me out to try and predict oil prices?’ So I sent him loads of data and he spent a couple of months and he sent it all back. And he said, ‘Gary, it’s impossible. There’s no pattern’.”

But Mr Ross insists there is. You just have to treat the market more as an art than a science. “[The data alone] does not take into account market psychology. That’s the art. And that’s why my brilliant brother couldn’t do it.”

As he prepared to leave S&P Global, Mr Ross arranged an office and a team so he could start his hedge fund immediately. He does not need the money. There is no plan to pursue other interests, because there are no other interests. “What else am I going to do? The only thing I know is oil.”

“Believe me, it is more exciting getting it right than anything else; that is the thrill. It is great that people want to know what you are thinking but the thrill is getting it right.”



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