Oil Market Gears Up for $9 Billion Index Buying Spree - Bloomberg

Oil Market Gears Up for $9 Billion Index Buying Spree - Bloomberg

Tens of billions of dollars worth of commodity investments are about to be switched around in a move that’s set to cause a wave of oil-futures buying.

While the move happens every year, crude’s 20% decline in 2020 means that the value of oil index investments has been far below its target for months. As a result, as much as $9 billion of oil contracts could be purchased over the five days of re-balancing that start Friday, according to Citigroup Inc., at a time when the market is already surged to 10-month highs.

The move affects the world’s two biggest commodities indexes -- the S&P GSCI Index and the Bloomberg Commodities Index. Crude has recovered from its coronavirus-driven rout and so far this year has been benefiting from Saudi Arabia’s unilateral output cuts, a surge of investments to hedge reflation and coronavirus vaccines. Markets are now abuzz with talk of the next tailwind for prices: commodity indexes plowing into another 80 to 100 million barrels of crude futures contracts.

“It’s a big deal,” said Gary Ross, a veteran oil market watcher and chief executive officer of Black Gold Investors LLC. “If you start increasing financial length by 80-100 million barrels, you push up the price $2-$3, all other things being equal.”