Oil again tops $100 as commodities prices resume gains

Prices of commodities rose Wednesday, with oil bouncing back above $100, in a quick rebound that suggests investors see room for prices to increase after a massive selloff this month.

Crude-oil futures settled 3.3 percent higher, at $100.10 a barrel on the New York Mercantile Exchange after data from the Energy Department showed U.S. oil inventories held steady last week when analysts predicted an increase.

Corn jumped 4.2 percent, to $7.5025 a bushel, on signs that poor weather will threaten the yields on coming harvests. Silver, one of the most volatile commodities over the last month, rose 4.8 percent, to $35.097 per troy ounce.

Those gains come on the heels of plunges in prices of raw materials that many saw as part of a market-wide run from risky assets. Before Wednesday’s session, oil prices were down 14 percent from the beginning of May after falling more than $9 on May 5 alone. Other basic goods witnessed similar steep drops this month, while the Dow Jones Industrial Average was down 2.6 percent over the same period.

Part of the declines was due to high prices of commodities, and the potential for high food and energy costs to slow an economic recovery. But also contributing to the commodities drop was a turnaround in the dollar’s months-long slide against other currencies.

Investors had bet en masse that dollar declines due to government stimulus efforts would result in a rush to hard assets. But with stimulus plans expected to end soon, those long-profitable trades have lost popularity.

Now, traders say commodity prices have fallen too far, too fast in adjusting to a rising dollar against its major trading partners, particularly the euro.

“People are thinking this market has gotten a little bit oversold,” said Mike Zarembski, senior commodity analyst at OptionsXpress.

The ICE dollar index was recently up 0.5 percent, to $1.2540. The euro was nearly flat at $1.4233.

Many large investors, including hedge funds, are still betting on rising costs for basic goods over the long term, as emerging markets draw on more raw materials and demand in developed nations recovers. The latest market declines, traders say, offer a low entry-point for new bets on rising commodity prices.

“The funds have returned. They had gone through liquidation and now they’re coming back to commodities,” Citigroup analyst Mario Balletto said.

Last week, data from the Commodity Futures Trading Commission showed hedge funds and other investors still had large bets in place that commodity prices would rise despite steep price declines.

The CFTC, which regulates futures and other derivates, said money managers cut their net long position in crude-oil futures by 10 percent. But the group still held 233,569 more long contracts that anticipate rising prices than short contracts wagering on a decline, keeping the total net long position close to record levels. Copper and silver saw steeper declines, though money managers still remained net-long in these markets.

Oil continues to serve as a guidepost for the broader commodities sector. Traders pointed to price action on Tuesday, and the market’s ability to hold above $95 a barrel, as a technical signal that the correction had ended. With the dollar strengthening, oil fell as low as $95.02 a barrel but rebounded to finish down just 46 cents on the session.

“The test of $95 kind of served as the catalyst,” Zarembski said. Oil-futures options expired Tuesday and traders pointed to high volumes surrounding $95 puts, or bets that prices would fall below that level.

Gasoline futures settled 3.62 cents higher, at $2.9555 a gallon. Gold rose 1.1 percent, to $1,495.80 per troy ounce.