03 April 2017 at 7:28 GMT
The combined net long in commodities (ex-Brent and gas oil)
has halved since mid-February. Photo: Shutterstock
By Ole Hansen
Hedge funds selling of commodities extended into a sixth week and the combined net-long (minus Brent and gas oil) has now halved during this time. During the week ending March 28 the selling in energy slowed while buyers returned to metals.
The agriculture sector meanwhile remained under pressure with nine out out of the 13 futures being sold.
The selling has been particularly apparent in the grains and soybean complex. During the past six weeks the combined position across the six futures in this sector has changed from a 380,000 lot long to a 245,000 short.
The selling was widespread as traders anticipated a bearish *Prospective Planting Report' from the USDA last Friday. In the end the survey covering 83,000 farmers planting intentions raised the acreage for soybeans at the expense of wheat and corn. Due to the elevated bear bets, especially in corn and wheat, these two crops could see some short-covering over the coming days.
WTI crude was sold for a fifth week with net-long now reduced by 41% from the February 21 record. The long/short ratio dropped to 3.1 from a recent peak at 11.5 and these developments helped trigger the strong recovery last week in response to supportive news on production and demand.
Having seen both WTI and Brent crude oil retrace half of what was lost during March, we may now see the market consolidate while waiting for further news on compliance, Libya and US production and inventory levels.
Gold and silver were both bought with silver outperforming gold on the week. The failure however by gold to make it back above its 200-day moving average at $1,260/oz has made it vulnerable to a correction with focus on $1,236/oz followed by $1,228/oz
— Edited by Martin O'RourkeOle Hansen is Saxo Bank's head of commodities strategy