Nov. 21 (Bloomberg) — Combined open interest in West Texas Intermediate and Brent crudes has dropped to the lowest level in almost two years as hedge funds and other investors focus on markets offering better returns.

The benchmark oils have dropped more than 20 percent this year while U.S. equities surged. Combined open interest for WTI and Brent, the number of futures contracts outstanding, slipped to 2.8 million contracts yesterday, the least since Jan. 8, 2013, according to exchange data compiled by Bloomberg.

“A lot of players are long-only,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said by phone. “A lot of hedge funds are only interested in a one-way trade and now find it necessary to reduce their exposure.”

Oil plunged into a bear market last month, the result of a surge in shale drilling that has lifted U.S. production to a three-decade high as well as slowing growth in global demand. OPEC members Saudi Arabia and Kuwait have resisted calls to cut output while Libya, Venezuela and Ecuador have asked for action to prevent even lower prices. The Organization of Petroleum Exporting Countries will discuss production when ministers meet in Vienna on Nov. 27,

“The lack of open interest is indicative of greater-than-usual uncertainty in the market,” Tom Finlon, Jupiter, Florida-based director of Energy Analytics Group LLC, said by phone. “I can’t think of the last time we’ve gone into an OPEC meeting where the outcome hasn’t been preordained. It’s been a very long time.”

Futures Decline

WTI touched $73.25 a barrel on Nov. 14, the lowest level since September 2010, on the New York Mercantile Exchange. Futures climbed 66 cents, or 0.9 percent, to settle at $76.51 today, leaving them down 22 percent for the year.

Hedge funds cut bullish holdings in WTI as futures tumbled. Long positions dropped to the lowest level in 17 months in the week ended Oct. 28, U.S. Commodity Futures Trading Commission data showed Nov. 4. Bets in rising prices climbed to a record in June as fighting in Iraq threatened to disrupt supply from OPEC’s second-biggest member.

“The drop in open interest is certainly being reflected in the long liquidation of the last five or six months,” Tim Evans, an energy analyst at Citi Futures Perspective in New York, said by phone. “Money managers are holding smaller positions and some producers have lifted their hedges.”

Brent reached a four-year low of $76.76 a barrel Nov. 14 on ICE Futures Europe exchange. The contract advanced $1.03 today to close at $80.36, down 27 percent in 2014.

Equity Rally

The Standard & Poor’s 500, which reached a record today, has climbed 11 percent this year, while the Dow Jones Industrial Average rose 7.3 percent.

“With the markets underperforming compared to equities, with the S&P 500 reaching new records, there’s little interest,” Kilduff said. “There’s been little inflation, so no need for it as a hedge.”

Combined open interest surged to a record 3.498 million futures in August 2013, when WTI reached $112.24 a barrel.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net

To contact the editors responsible for this story: David Marino at dmarino4@bloomberg.net Charlotte Porter