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Bloomberg: Oil Futures Exodus Biggest Since Lehman


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 $78.88 a barrel as of 12:33 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.”

To contact the reporters on this story: Alexander Kwiatkowski in London at; Grant Smith in London at


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