Crude oil was little changed after rising above a record $108 a barrel in New York yesterday as investors bought commodities because of higher returns than those of financial markets.
Commodities have outperformed stocks as oil, industrial metals and wheat prices rallied this year, while the S&P 500 and Dow Jones Industrial Average dropped. More pension funds and other money managers plan to boost commodities investments in the next three years, Barclays Plc said yesterday.
``There's increased uncertainty in equity markets, debt markets and of course property markets,'' said Mark Pervan, a senior commodity strategist at Australia & New Zealand Banking Group Ltd. in Melbourne. ``The oil market has the best long-term value of any commodity because of very strong ongoing demand, so the funds are switching from other asset classes.''
Crude oil for April delivery was trading at $107.82 a barrel, down 8 cents, in after-hours electronic trading on the New York Mercantile Exchange at 11:17 a.m. in Singapore. Yesterday, the contract rose $2.75, or 2.6 percent, to close at a record $107.90 after surging to $108.21, the highest since trading began in 1983.
Brent crude for April settlement traded unchanged at $104.16 a barrel on London's ICE Futures Europe exchange. Yesterday, it climbed $1.78, or 1.7 percent, to close at an all- time high of $104.16 after reaching $104.42, an intraday record.
Investments in commodity hedge funds rose to $104 billion at the end of 2007 from $73 billion in the first seven months of last year, according to data from Singapore-based research company Eurekahedge.
Barclays Survey
Thirty-four percent of about 260 investors surveyed at a conference in Barcelona last week said that more than 10 percent of their portfolios would consist of commodities in the next three years, Kevin Norrish, director of commodity research at Barclays, told reporters in London yesterday. That's up from 22 percent of those surveyed a year earlier and 19 percent in 2006, he said.
``Since the credit crisis started, there has not been a better asset class than commodities,'' Norrish said. Investments in the commodity market totaled $178 billion last year, he said.
The worst U.S. housing market in more than a quarter of a century, fueled by $188 billion in losses by Wall Street banks, and a decelerating economy have contributed to a plunging dollar and pushed investors to buy oil, which has held its value better than the dollar.
The dollar traded at $1.5354 per euro at 11:11 a.m. Singapore time. The U.S. currency touched $1.5459 late last week, the weakest level since the euro's debut in 1999.
Fund Buying
``The weak dollar is driving the movement of money into commodities,'' said Victor Shum, senior principal at Purvin & Gertz Inc. in Singapore. ``Money always looks for better returns.''
Hedge-fund managers and other large speculators increased net-long positions, or bets on higher prices, in the week ended March 4, the Commodity Futures Trading Commission said.
``There's a heck of a lot of interest in the oil market at the moment,'' Australia and New Zealand Banking's Pervan said. ``It's quite evident when you look at the open interest on futures.''
Open interest is the total number of futures contracts that have not been closed, liquidated or delivered.
U.S. crude-oil inventories rose 1.63 million barrels last week, according to the median of 10 responses in a Bloomberg News survey. Stockpiles increased in seven of the previous eight weeks, Energy Department figures showed.
U.S. gasoline stockpiles are at their highest level since 1994. Inventories probably climbed 250,000 barrels from 234.3 million barrels the week before, according to the survey.
``Because the pricing is increasingly diverging from the fundamentals, there is a strong risk that the price bubble may burst sooner for oil than for other commodities,'' said Purvin & Gertz's Shum. ``At some point, there will be a trigger and it may be due to a buildup of bad economic news out of the U.S., where investors will exit oil.''
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