Commodity Open Interest Jumps to Two-Week High on Oil Rally

Investors increased commodity holdings to the highest in more than two weeks as oil’s rally to a 15-month high boosted the outlook for raw material returns.

Open interest of contracts outstanding for the 24 commodities tracked by the Standard & Poor’s GSCI spot gauge gained 0.9 percent this week, data compiled by Bloomberg show. The GSCI gauge touched a three-month high of 647.57 yesterday, and is up 1 percent this week.

“Commodities had quite a strong decline relative to other asset classes in the second quarter,” said Jeremy Baker, a senior commodities strategist overseeing about $800 million of assets at Harcourt Investment Consulting AG in Zurich. “Now the question comes, do you think equities are fairly-valued or are they overvalued? If investors decide to shift more money into risk, then commodities are probably not a bad place to be shifting it to.”

Open interest, or the number of contracts that have yet to be closed, liquidated or delivered, reached 13.19 million contracts on July 11, the highest since June 25. It reached 13.7 million contracts on June 17, the highest since at least January 2006. The S&P GSCI gauge fell 6.7 percent in the second quarter and 1 percent this year, while the MSCI All-Country World Index of equities, which slipped 1.2 percent in the quarter, is still 9 percent higher since the start of January.

Minutes of the U.S. Federal Reserve’s last meeting released July 10 showed many policy makers want to see more signs that employment is picking up before they’ll slow bond purchases. The central bank is buying $85 billion of bonds a month. European Central Bank President Mario Draghi this week reiterated that the bank will keep interest rates low for an extended period. Hedge funds and other large speculators cut their bets on a rally in commodity prices by 17 percent to 464,529 futures and options in the week through July 2, U.S. Commodity Futures Trading Commission data show.

Oil Futures

Open interest in West Texas Intermediate crude oil futures is up 3 percent this week as prices head for a third straight weekly gain. Futures jumped to a 15-month high yesterday after U.S. stockpiles fell and and amid concern political turmoil in Egypt may spread and disrupt Middle East oil supplies.

WTI for August delivery was at $104.76 a barrel, down 0.1 percent, on the New York Mercantile Exchange at 7:02 a.m. Brent for August settlement was little changed at 107.78 a barrel on the London-based ICE Futures Europe exchange. Open interest in Brent oil jumped 3.3 percent to the highest since May 13. WTI makes up 24.7 percent of the GSCI gauge and Brent accounts for 22.3 percent.

Oil Exposure

“For a long-only investor who puts money into a commodity basket, the hope is that your basket has a higher oil exposure given decent short-term fundamentals,” said Andrey Kryuchenkov, an analyst at VTB Capital in London. “A favorable combination of geopolitical jitters and robust refining demand in the U.S. in addition to supply side glitches keeps oil prices well-supported. Short-term supply concerns underpin both benchmarks.”

Gold open interest slid 0.2 percent this week through July 10, according to the latest data available. Futures are up 4.7 percent this week, a first gain in four weeks. Gold has a 3 percent weighting on the GSCI.

Copper open interest is down 2.3 percent on the Comex this week through July 10 as futures gained 2.8 percent. Aluminum open interest is down 0.8 percent on the London Metal Exchange as prices advanced 3.5 percent. A combination of falling open interest and rising prices suggests short-covering, or closing bets on falling prices, according to Macquarie Group Ltd.

Open interest in Chicago corn futures slid 1 percent in three days through July 10 and wheat open interest dropped 1.7 percent before the U.S. Department of Agriculture report yesterday.

To contact the reporter on this story: Maria Kolesnikova in London at mkolesnikova@bloomberg.net

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net

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