Article / 20 June 2016 at 7:57 GMT

COT: Brexit and weather driving commodity demand

Head of Commodity Strategy / Saxo Bank
  • Bullish commodity futures and options bets rose 11%
  • Demand for agriculture commodities in particular surged
  • Brexit and a dovish FOMC prompt strong gold demand
  • WTI net-long fell 18% to a three-month low amid heavy selling
 Fears that British voters might vote themselves out of the EU explains gold's popularity. Pic: iStock

By Ole Hansen

Hedge funds increased bullish commodity futures and options bets by 11% to 1.51 million lots during the week ending June 14.

Speculative positioning in Commodities
This was not least due to a continued surge in demand for agriculture commodities such as soybeans, corn, sugar and hogs.

Speculative positioning in agriculture commodities

Both the net and gross short positions in HG copper reached a new record high last week. The 27% jump in the net short to 47,109 lots occurred without the support from a weaker price with HGN6 having traded within a relatively tight range above $2/lb during the past three weeks. Considering the elevated short one should look out for any signs of emerging support with the risk reward increasingly being skewed to the upside.

Speculative positioning in COMEX Copper

Natural gas continue to attract additional buying in response to the 20% rally during the past three weeks. Bullish bets on 4 Henry Hub deliverable contracts rose by 50% to an 18-month high last week.

Sugar buying continued with the net-long reaching a new record of almost 250,000 lots. Sugar has climbed by more than one-third since April and during this time most corrections have been shallow leaving bullish traders with no need to adjust positions. During the reporting week SBV6 traded within a 19 to 20 cents/lb range before attempting to break higher, a move that has so far proved unsuccessful.

Speculative positioning in Commodities
Precious metals were in demand ahead of the UK referendum with the net-long in gold jumping by 29% to a near record of 240,862 lots. The buying, however, occurred before the extension to a near 2-year high last Thursday in the aftermath of the surprisingly dovish Federal Open Market Committee meeting.

The importance of the Brexit vote was also seen last Thursday following the temporary suspension of campaigning. Momentum players who bought the break above $1,303 cut positions once the market reversed and this helped trigger a $40 top to bottom reversal from where it slowly recovered on Friday.

Speculative positioning in COMEX Gold futures
WTI crude oil saw a big week of selling with the net-long falling 18% to a three-month low. During the week in question WTI crude rallied above $50/b. But the combination of emerging risk adversity, a stronger dollar and fading supply disruptions helped trigger profit taking and a second week of increased short selling. 

The two-week surge in new short positions have raised the question whether a new bear cycle has begun. We view the risk of that being limited and instead see the market continuing to settle into a $45 to low $50s range during the coming weeks. 

Speculative positioning in WTI Crude oil
– Edited by Clare MacCarthy

Ole Hansen is head of commodity strategy at Saxo Bank. His Twitter account was cited by MarketWatch as one that investors should follow in 2016.

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Commitments of Traders: Commodities

20 June
John Roberti John Roberti
Dear Ole, today the stock market trends look up, the us index appears weak, the is a lack of data to help the market move and thus what do you expect from Brent and WTI? Furthermore, I have not been able to find the weekly stats on rigs count in the US normally published on Friday night on Forex factory?
20 June
Ole Hansen Ole Hansen
The number of US rigs rose for a third consecutive week, this time by 9. As i wrote in the piece above funds have increased short bets on oil during the past couple of weeks. This and a weaker dollar combined with the changed tone in the market with UK polls once again favoring a remain vote helped trigger the recovery in oil since Thursday.
The market is now more balanced with the net-long down to a three-month low. It's trading very technically with WTI and Brent last week both finding support at the 61.8% retracement of the May to June rally. Again using retracement of the latest sell-off resistance could now be found at $49.44 on CLN6 (expiring Tuesday ) and $50.60 on LCOQ6
20 June
John Roberti John Roberti
Thank you for your valuable analysis
20 June
Ole Hansen Ole Hansen
Hedge funds cut bullish bets on Brent crude by 4.5% or 17,333 lots last week. Longs were cut by 8.3K while shorts rose by 9k.
This has left the combined net-long in WTI and Brent crude at 587.2k lots, down 11% from the record reached during the week of April 26.


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