Article / 11 September 2017 at 8:27 GMT

COT: Metals may pause after weeks of buying — #SaxoStrats

Head of Commodity Strategy / Saxo Bank
  • Hedge funds bought commodities broadly in week to Sept 5
  • Hurricane Harvey boosted energy commodities, and industrial metals stayed bid
  • Farm commodities were mixed, with corn and wheat sold before the WASDE report
  • Hurricane risk drove up cotton and sugar prices
  • Gasoline and ultra low sulfur diesel jumped on Harvey supply disruptions
  • Short sellers remain unconvinced of WTI’s ability to break back above $50/b
  • Gold was bought for a seventh consecutive week as USD reached new low
Hurricane Harvey map
 Hurricane Harvey drove up energy commodities, as well 
as cotton and sugar prices. Photo: Shutterstock

By Ole Hansen

Hedge funds were broad-based buyers of commodities in the week to September 5. The aftermath of hurricane Harvey gave energy futures a boost, while precious and industrial metals remained in demand. The agricultural sector was mixed, with corn and wheat sold ahead of the September 12 WASDE report. Risk of hurricane damage to cotton fields and sugar canes helped attract buyers to those two soft commodities. 

Speculative positioning in Commodities
RBOB gasoline and NY Harbor ULSD (ultra low sulfur diesel, former known as heating oil) both witnessed strong buying in response to the supply disruptions caused by hurricane Harvey on the Texas Gulf Coast.  

COT: Gasoline and ULSD
The squeeze in WTI crude oil early last week triggered only a minor adjustment of the near-record selling seen the previous week. Short sellers remain unconvinced about WTI’s ability to break back above $50/barrel at this stage.  
Speculative positioning in WTI Crude oil
Gold was bought for a seventh consecutive week as the dollar reached new lows, North Korean tensions persisted, and US bond yields dropped to levels not seen since last November. So far on Monday, however, we have seen gold retrace further as North Korea's missile launch never materialised at the weekend, while Hurricane Irma was downgraded after causing less damage than feared. 

China's yuan weakened for a second day as the government eased measures originally put in place to punish short selling of the currency. These developments have left gold at risk of a correction, not least considering the elevated fund position, which reached 95% of the one-year high last week. The ratio between long and short futures positions reached a near five-year high at 20 longs per 1 short.

Speculative positioning in COMEX Gold futures
Another commodity at risk of a correction is copper. After a 26% rally from the May low and a four-fold increase in the net long, the price has increasingly become detached from current fundamentals. Last week on, we highlighted our reasons for being worried about a correction. On Friday, copper ran out of buyers and dropped 3.3% as recent buying of the Chinese yuan also came to halt.

COT: HG Copper
Grain traders continued to sell corn and wheat ahead of the September World Agricultural Supply and Demand Estimates (WASDE) report, which is due on Tuesday. Last month's report triggered a major selloff after the government raised yield and production forecast for all three crops by more than expected.

COT: CBOT Grains and soybeans
The impact of hurricane Harvey and now also Irma was not only felt across the energy space. The cotton net long jumped 72%, with hurricane Irma threatening to add to the damage already caused by Harvey.

COT: Soft commodities

— Edited by John Acher

Ole Hansen is head of commodity strategy at Saxo Bank

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Commitments of Traders: Commodities


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