Hedge funds dealing in energy and commodity indices are looking further into the future to make a better buck on oil. Reuters reports that there is a serious mood swing toward moving beyond the traditional near-month long strategy in which investors would sell off their expiring contracts and grab the lower prices in the following month and make a profit. But as the front-month oil futures have been trading at a discount – what the market calls “contango” – funds and indices were looking well beyond the next month to later months, which trade at a lower price than the current and nearer-future ones, in a movement called “backwardation.” The Goldman Sachs Commodity Index and the Dow Jones-AIG Commodity Index reportedly are doing just that, and it’s catching on. “There’s a huge movement out to these long-duration contracts – that’s shifting the curve,” Phil Verleger of PKVerleger told Reuters, noting that the price curve has definitely been affected, as there were at the end of January 411,000 contracts expiring in September 2008, compared with 226,000 six months earlier.
