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Data from crude oil, metals and grains exchanges on Wednesday showed a drop of between 2 and 17 percent in futures contracts that have not yet been exercised, expired, or fulfilled by delivery at the end of a trading day compared with a month ago. [ID:nN07518730]
A softer outlook for raw materials -- plus a stronger dollar from a halt in U.S. rate cuts -- has also led to more investors going short, or bearish, on commodities than those going long, or bullish, analysts said.
"It is a combination of shorts and liquidations," said Jim Ritterbusch, president of Ritterbusch & Associates, an oil trading advisory in Galena, Illinois.
Open interest in crude oil on the New York Mercantile Exchange stood at around 1.22 million contracts as of July 29 -- down nearly 6 percent from July 1, and off 9 percent from mid-July when the market traded near record highs, according to data from the Commodity Futures Trading Commission.
With crude prices down 20 percent since a July 11 record high of $147.27 a barrel, "a lot of the speculators will tend to take profits and move to the sidelines," Ritterbusch said.
He said this likely included institutional investors, like the big pensions funds and university endowments, that helped boost prices to all-time highs this year through passive investments in commodity indexes.
"Many of the traders that participated in the up move aren't necessarily the types to go short. They are more apt to take profits and get out of the way," Ritterbusch said.
The trend has been mirrored in other commodity markets.
Open interest in NYMEX's COMEX gold market stood at 434,024 contracts as of July 29, down 10 percent from mid-July levels.
On the Chicago Board of Trade, open interest fell 17 percent in soybeans, 7 percent in corn and 2 percent in wheat for July.
The Reuters-Jefferies CRB Index <.CRB>, one of the most popular vehicles for institutional investors in commodities, suffered its worst monthly decline in 28 years in July.
That came after the CRB saw its biggest quarterly gain in 35 years in June on the back of oil's stunning rally.
Analysts said inflationary pressure -- one of the biggest drivers for this year's commodities rally -- had been further restrained by this week's decision by the U.S. Federal Reserve not to cut rates, after extensive easing earlier in the year.
Analysts also noted the Fed's muted language on inflation in its latest policy statement, after more serious concerns on this voiced by Chairman Ben Bernanke in earlier months.
"We had seen a massive increase in open interest in commodities last August and September when we had Ben Bernanke's coming out party," said Peter Beutel, president at Cameron Hanover, a Connecticut-based oil trading advisory.
"He (Bernanke) basically said 'my favorite past-time is cutting interest rates', giving everyone a freebie on the commods market. We saw lots of refugees from stocks and bonds coming into commodities. Now these types have been getting out, largely because the dollar's been strengthening and commodities haven't been performing," Beutel said. (