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Bloomberg – Commodities markets are heading for the biggest annual decline since 2001 as investors exit leveraged bets and slowing economic growth erodes demand for raw materials.
The value of the 19 commodities in the Reuters-Jefferies CRB Index fell $280.6 billion, or 43 percent, from its July 3 peak, a loss larger than their total worth two years ago, data compiled by Bloomberg show. UBS AG, the Zurich-based bank that bought Enron Corp.’s energy unit in 2002, plans to exit most commodity trading. About 15 percent of investors in Boone Pickens’s BP Capital LLC hedge fund may want their money back.
The same credit-market seizure that led to last month’s bankruptcy of New York-based Lehman Brothers Holdings Inc. and the forced sale of Merrill Lynch & Co. is squeezing speculators who drove commodities to record highs. Slower expansion in the U.S., China and India is also undermining prices of crude oil, which fell 36 percent, and corn, down 43 percent.
Times Online – Surging fears of Armageddon in the global financial system ravaged a wide selection of commodities across Asia as groups ranging from hedge funds to day traders spent the day in a headlong flight from risk.
The shock waves from the bankruptcy of Lehman Brothers reverberated through markets for vegetable oil, soy beans, rubber and industrial metals as confidence in the financial system faltered, global growth prospects dimmed and cash became king.
Broad baskets of commodities — once seen by speculators as a sure-fire bet because of China and India’s apparently unstoppable growth — were sold, with food and metals tracking the sharp declines in crude oil.
Dealing floors in Asia descended into mayhem as analysts forecast a period where commodity markets were effectively “frozen” by a sudden drought of fresh capital.
Times Online – Several hedge funds face big financial losses after wrongly predicting that oil and gas prices would rise as a result of Hurricane Gustav slamming into the Gulf coast of the US earlier this week.
As Gustav swept towards New Orleans on Monday, catastrophe experts were predicting insured losses of up to $7 billion (£3.9 billion) as offshore oil rigs faced destruction and the storm threatened energy supplies.
Commodities hedge funds saw the glum prediction as an opportunity, betting heavily, using the futures market, that prices would surge in the wake of the hurricane chaos.
In New York, crude oil leapt to $116 a barrel in the hours before Gustav hit the US coastline. On Nymex, natural gas futures rose 45.3 cents to $8.278 per 1,000 cubic feet. However, the experts, and the hedge funds, were caught out. By the time the storm was sending water lapping over New Orleans’s flood barriers, Gustav had been downgraded by the National Hurricane Centre to a Category 1 event. Oil eased to $105.46, with dealers soon speculating that it would fall to $100.
Reuters UK – U.S. airlines are cheering a steep decline in the price of jet fuel since mid-July, when crude oil began a nearly $27-per-barrel descent, but that good news may come with a slight sting for carriers that locked in fuel prices when oil was at its peak.
The risk is that oil may drift below the current price airlines guaranteed with hedging contracts, which are usually options. If that happens, the hedges carriers purchased could be a waste of money.
Worse yet, it is possible some airlines could be committed to paying more for their fuel than market prices.
"Given some of the hedging mechanisms they are using, they are going to be subject to significant losses on those portfolios. We’ve never seen such volatility on oil prices," said Brian Nelson, equity analyst at Morningstar.
Globe and Mail- Hedge funds may post their worst month in at least five years after bets on financial stocks falling and on crude oil rising backfired.
Hedge Fund Research Inc.’s Global Hedge Fund Index of more than 55 funds slid 3.2 per cent through July 24, heading for the biggest monthly drop since the measure started in 2003.
Wagers on a drop in financial stocks and home builders soured after shares of U.S. mortgage lenders Fannie Mae and Freddie Mac more than doubled during the six trading days to July 23.
Bullish bets on crude oil turned to a loss as oil slid 15 per cent from a record $145.29 (U.S.) a barrel on July 3 after doubling in a year.
