Former global macro fund manager Raoul Pal, who called the oil price collapse in late 2014, is beginning to sense a big trading opportunity in the oil market again.
“I think something really big is brewing in oil and it’s probably not ready yet as a trade, but I see the speculative long position in oil much beyond where it was in 2014,” Pal told Yahoo Finance. “People are taking a huge bet.”
In the late fall of 2014, Pal correctly predicted that oil (CL=F) would fall to $40 a barrel. He now thinks the price could fall to $30.
Over the last year, oil has traded between $38 and $58 per barrel. More recently, crude has been trading around $50.
One thing that’s caught Pal’s attention as he’s been building his oil thesis has been the dollar versus the oil price.
“There’s also the fact the dollar been strengthening gradually and the price versus oil has diverged, and so that gap should go meaning oil should fall lower in price.”
Pal expects the U.S. dollar to rally again.
“I think we’re in that phase again where the dollar starts going higher again based off a number of reasons that has nothing to do with interest rates,” Pal told Yahoo Finance.
“It has to do with the relative strength of economies and the fact of the world has a shortage of dollars,” he said. “So there’s a whole structural reason why the dollar should go higher and Trump’s policies are very very pro-dollar. There’s one thing that’s clear it’s a very pro-dollar policy.”
One of the macro implications of a strong dollar is that the price of oil and commodities generally goes down. In this framework, he also expects bonds to rally.
Pal, a Goldman Sachs alum, previously co-managed GLG’s global macro fund, one of the largest in the world. He retired in 2004, and he now authors a research letter, The Global Macro Investor, which is read by some of the most influential hedge fund managers. Pal is also the co-founder of Real Vision Television, an online subscription financial-news service.