- Bullish bets on oil rose while for gold they sank
- WTI gross-long hit highest level since July 2014
- Further gold long-liquidation possible if $1,250 level breaks
Bullish oil bets took flight on the Opec deal. Pic: iStock
By Ole Hansen
Hedge funds maintained an almost unchanged bullish exposure to commodities during the week ending October 4. But behind that number some major shifts took place. Not least from precious metals to oil following the Opec agreement to cut production and gold’s key technical break below $1300/oz.
Bullish bets on WTI crude oil jumped 40% or 73,051 lots to the 254,503 lots, the highest reading since May 2015. The gross-long at 353,162 lots is the highest level seen since July 2014, just before the selloff began. The gross-short declined by 30% to 98,659 below the two-year average of 112,000 lots.
With the open interest on WTI crude oil hitting a fresh record following October 4 we can assume that the buying had continued up until last Thursday when WTI crude oil broke above $50/b. This has once again left the market vulnerable to negative news, especially from Opec producers such as Iraq which over the weekend stated that it was looking to increase production
further in 2017.
Last week the US oil rig count rose to an 8-month high after drillers added rigs for a sixth straight week. A strong rally carries the risk of self defeat as the market focus could shift to returning barrels from non-Opec producers, such as those in North America. Following the Opec deal oil for delivery in both 2017 and 2018 returned to levels last seen in June. This helped trigger a pick-up in US producer hedging with the gross-short among the producer merchant category rising to a new record during the above mentioned reporting week.
Gold selling accelerated once the key technical area of $1,300/oz was broken on October 4, the day that data for this report was compiled. It resulted in the net-long being cut by 22% primarily due to long-liquidation. The net-long has now been cut 82,000 lots or 29% since hitting a record on July 7. At 205,000 lots however it remains more than 30% above the low point witnessed following the May selloff. This could indicate some additional long-liquidation, especially if $1,250/oz fails to provide support this week.
With an additional 20,000 lots sold funds continued to add to an already record short position in CBOT wheat. The contract has been range-bound between $3.9 and $4.11 for the past six weeks with a break higher likely to trigger buy stops as short positions are being reduced.
– Edited by Clare MacCarthy
Ole Hansen is head of commodity strategy at Saxo Bank