Hedge funds bet on biofuels in hopes of profiting from oil price shocks

Golden Ten Data reported on May 12 that, according to the Financial Times, due to significant volatility in the energy markets caused by the Iran war—and growing concerns over long-term fuel supply disruptions in the Strait of Hormuz—hedge funds are flocking to the agricultural products market used for producing biofuels. Data from the U.S. Commodity Futures Trading Commission shows that, since the outbreak of the Middle East conflict, hedge funds' net bets on soybean oil (used in biodiesel production) have almost doubled. For corn, the raw material for ethanol, hedge funds have shifted from expecting price declines to the most bullish position so far this year. Hedge fund managers and traders indicate that, since the conflict began, oil prices have surged and many funds believe agricultural product prices will be the next market to rise. Doug King, head of RCMA Capital, commented on the rapid changes in hedge fund positions in these soft commodities, saying: “I don’t think this is just a steady adjustment, but rather a lightning-fast full-scale entry.”