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25 Sep 2006

Oil Slump and Hedge funds

Traders said today that the precious metals market is under pressure because of a sharp drop in oil in the recent past. Prices fell more than 3% this week, taking it almost $17 below a record-high of $78.40 in July. Oil prices then spiked on Sept 20, bringing US light crude up 10 cents at $61.76.

Some traders speculate that the volatile surges may be linked to billion dollar losses at prominent hedge funds. “As the market seems to fear that further hedge funds could liquidate long positions, we expect energy prices to test even lower levels during the next days,” Dresdner Kleinwort said in a daily market report. Dresdner Kleinwort is the investment bank of Dresdner Bank AG and a member of Allianz, headquartered in London and Frankfurt

US crude stocks were forecast to fall 1.6 million barrels, which would still leave them in the upper end of the average range for this time of the year, a Reuters poll showed. Gasoline stocks were expected to rise by 100,000 barrels.

Private US weather forecaster AccuWeather said on Sept 19 it expected colder than normal temperatures in the US Northeast, home to 80% of US heating oil demand, and in the Midwest, where gas is the home heating fuel of choice.

Some Opec ministers have signalled a price of $50-$60 a barrel should be sustained, but the cartel has avoided setting a formal target. The Opec basket stood at $58.67 on Sept 18.

Harvard Hedge Fund hits 29 billion

The Harvard University investment arm, Harvard Management Co., manages the largest education based endowment in the world. Harvard has a long record of success in beating the market, but this years $29.2 billion rate of returns falls slightly from last years high. Big gains in commodities and foreign stocks were among the endowment’s investment highlights.

Harvard’s hedge fund endowment grew $3.3 billion during the fiscal year ending June 30, reaching an all time high of $29.2 billion, returning 16.7% on its investments.

Harvard Management said its most recent annual performance was particularly strong in emerging markets, included gains of 37.8% in emerging market stocks, which includes industrializing economies such as India, China, Russia, and Brazil.

The report also showed gains of 26.7% in commodities, 26.5% in more developed foreign stock markets, and 22.7% in real estate. It earned 22.7 percent in private equity investments and 15 percent in hedge funds categorized as “absolute return and special situations.”

El Erian, the new head at the Harvard hedge fund, since Jack R. Meyer left in September, said that investors are copying Harvard’s endowment strategies. “The minute something becomes attractive in terms of showing that it results in consistent returns, a lot of people want to do it,” he said.