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LONDON - Institutional money flows into oil are playing a big part in its advance to record peaks, a portfolio manager at commodities hedge fund Tiberius said on Friday.

He said the latest rally in commodities started when the U.S. Federal Reserve cut its discount rate in August to help ease the credit market crisis triggered by bad loans in the U.S. mortgage sector.

But the shift in the structure of the oil market to backwardation from contango also played a big part.

"A lot of institutional capital is attracted by the backwardation that is in the oil market today," said Markus Mezger, who manages investment portfolios at Tiberius.

Backwardation occurs when commodity prices nearby are higher than those in the future. Contango is the opposite structure where prices further forward are higher than nearby.

Backwardation means investors can make money simply by buying nearby commodity futures contracts and then roll them forward each month when the nearby contract expires.

"A lot of institutions have taken advantage of the positive roll-yield and I think we had a good inflow of institutional capital," Mezger said.

Speculative positions in commodity futures, as tracked by the U.S. Commodities Futures Trading Commission, have also risen.

"It has risen very much in the last three months - so there is a little bit overheated sentiment for commodities as a whole," he said.

But Mezger believed not a lot of fresh capital was coming into the oil market now from the hedge fund sector, it was more that they were closing out of short positions.