Commodities Fall to Lowest Since the 1991 on Oil Rout

Crude oil in New York dipped below $30 a barrel, copper fell to less than $2 a pound and natural gas as low as $2.24 per million British thermal units.

The expansion of the global economy has faltered, supplies of everything from oil to copper to grains are ample and a stronger dollar has eroded the appeal of raw materials as alternative investments.

Hedge funds are positioning for more losses, holding the biggest net-short bet across raw materials since at least 2006. A combined measure of net-short positions across 18 commodities reached 164,203 future and options contracts as of Jan. 5, the latest government data show. That’s the most bearish since the data begins in June 2006. The gauge turned negative for the first time ever in November.

The decline for prices is dragging down commodity companies. Shares of Freeport, the world’s biggest publicly traded copper producer, tumbled 20 percent on Monday, the biggest one-day loss since the data begins in 1995. The shares fell an additional 4.6 percent Tuesday. BHP Billiton Ltd., the top global miner, is trading near the lowest in a decade in Australia.

The prolonged price slump is a reversal from the previous decade, when booming growth across Asia fueled a synchronized surge in prices, dubbed the commodity super cycle. Farmers, miners and oil drillers expanded supplies, encouraged by prices that were at record highs in 2008. Now, that output is coming to the market just as global growth is slowing.

Dollar Relationship

Oil is particularly leveraged to the dollar and may fall between 10 to 25 percent if the currency gains 5 percent.

Crude also fell as the U.S. dollar strengthened, diminishing the appeal of commodities denominated in the currency. The Bloomberg Commodity Index, a gauge of 22 raw materials slumped to the lowest level since 1999.