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Oil Futures Exodus Biggest Since Lehman Demise: Energy Markets
2010-07-23 13:49:08.301 GMT
By Alexander Kwiatkowski and Grant Smith
July 23 (Bloomberg) -- Investors are exiting the oil-
futures market at the fastest pace since the collapse of Lehman
Brothers Holdings Inc. amid evidence the global economic
recovery is slowing.
Bets on West Texas Intermediate crude slumped 13.2 percent
in the 60 days through July 20 to the lowest level since
November, data from CME Group Inc.'s New York Mercantile
Exchange and London's ICE Futures Europe exchange show. The last
time open interest fell more was the 13.7 percent decline over
the similar period through Oct. 7, 2008, three weeks after
Lehman filed for the biggest bankruptcy in U.S. history.
"There's very little conviction among our customer base in
terms of where we are in the global economic cycle," Sabine
Schels, a commodity strategist at Bank of America Merrill Lynch,
said in an interview in London. "The flows are very low, and I
think it has to do with the fact that the macro environment is
very uncertain right now."
More Americans filed applications for unemployment benefits
last week than analysts surveyed by Bloomberg estimated, Labor
Department figures showed yesterday. China's economy expanded
10.3 percent in the second quarter, from 11.9 percent in the
January-to-March period, the National Bureau of Statistics said
on July 15. Federal Reserve Chairman Ben S. Bernanke said on
July 21 the U.S. economic outlook is "unusually uncertain."
Open interest in WTI futures fell to 1.80 million lots on
the Nymex and the ICE exchange as of July 21 from 2.18 million
on May 13. The lots include physically and financially settled
contracts held by traders betting on prices rising and falling.
'Could Work'
"This is a very significant de-leveraging that bares
comparison to the 2008 investment outflows," Olivier Jakob,
managing director of Petromatrix GmbH in Zug, Switzerland, said
in a report. "The current trend of divestment could work
against the sustainability of a price rebound."
Crude prices fell 9.7 percent in the three months through
June, after rising for five consecutive quarters, as investors
bet widening European government budget deficits would dent the
recovery. European Union regulators are scheduled to release
results of stress tests on 91 banks today to reassure investors
about the health of the region's financial institutions.
"There's a lot of uncertainty regarding the European
sovereign debt crisis, regarding the state of the Chinese
economy in terms of a hard versus soft landing, and finally
whether it's going to be a jobless recovery in the U.S.," said
Schels of Merrill Lynch.
Reduced Incentive
Investors are also shunning oil as prices trade in line
with equities, reducing the incentive to invest in crude as an
independent asset class, according to Jakob. Oil's correlation
to the Standard & Poor's 500 Index is 81 percent compared with
54 percent at the end of March, Bloomberg data show.
"When the correlations between crude and the S&P index are
running at such a high level, there is little added value in
trading crude on its own," Jakob said. "That is chasing away
some market interest."
Investment flows into commodity indexes, typically used to
hedge financial market risk, fell to $4 billion in the second
quarter, the lowest since the first three months of 2009,
according to Barclays Capital research.
"There are a number of issues giving commodity investors
pause for thought," Barclays analysts including Kevin Norrish
wrote in a report today. The bank identified some these as
"increased volatility and linkages with other assets, as well
as concerns about the outlook for commodity fundamentals and
prices in the wake of the credit crunch."
Oil Prices Gain
Crude for September delivery rose $2.74, or 3.6 percent, to
$79.30 a barrel on the Nymex yesterday, as stocks rallied after
EBay Inc. and Caterpillar Inc. reported earnings that beat
analysts' estimates. Oil is little changed this year and was at
$78.81 a barrel as of 2:48 p.m. London time.
Oil has climbed more than 5 percent during the two-month
period that open interest decreased, partly as traders bought
back contracts sold earlier to close out bearish short
positions, according to Harry Tchilinguirian, the London-based
head of commodity-markets strategy at BNP Paribas SA.
"When you have over a period of time a decline in open
interest and rise in prices, the implication is that short
positions were covered," he said. "The further technical
implication of short covering is that the price increase has
weak support, in contrast to a situation where both open
interest and prices rise together."
--Editors: Raj Rajendran, Stephen Voss
To contact the reporters on this story:
Alexander Kwiatkowski in London at +44-20-7330-7450 or
akwiatkowsk2@bloomberg.net;
Grant Smith in London at +44-20-7330-7353 or
gsmith52@bloomberg.net
To contact the editor responsible for this story:
Stephen Voss at +44-20-7073-3520 or
sev@bloomberg.net
