Article / 03 July 2017 at 8:00 GMT

COT: More commodity selling as short-covering risk rises — #SaxoStrats

Head of Commodity Strategy / Saxo Bank
Denmark
  • Net longs in commodities continued to fall
  • Cotton, cocoa, coffee, sugar faced heavy selling
  • Wheat was the only grain that increased in price
  • Crude oil selling almost came to halt
Cottonfield
This cotton field looks beautiful, but the raw material 
was once again sold rather heavily. Photo: Shutterstock
 
By Ole Hansen

Hedge funds' selling of commodities continued at a strong pace for a second week. In the week to June 27 the net-long across 23 US traded commodity futures was cut by 153,000 lots or 31% to just 344,000 lots. 

Speculative positioning in Commodities
 Source: Saxo Bank

Speculative positioning in Commodities
 
Heavy selling continued in softs with all four commodities seeing net-selling, not least coffee and sugar where the net-shorts have reached record territory.

Speculative positioning in soft commodities
Source: Bloomberg, Saxo Bank

Grains were sold with the exception of wheat where deteriorating crop conditions helped boost the price, especially of Minneapolis red spring wheat which is not tracked in this report due to limited fund involvement.  

For soybeans the near-constant selling seen during the past 19 weeks turned out to be particular painful for those funds holding a record gross-short. The USDA acreage and stock report last Friday showed a surprise reduction in the soybeans acreage and ZSX7 surged higher to reach a 15-week high. 
Speculative positioning in Soybeans
 
Precious metals were sold for a third week with the gold net-long falling to levels last seen at the bottom of the May correction. Following hawkish central bank comments, traders have adjusted their rates outlook which has also triggered renewed weakness in bonds and the Japanese yen.

Silver was the hardest hit with the net-long falling to a 17-month low, not least due to aggressive short-selling.

Precious metals




Source: Bloomberg, Saxo Bank

Crude oil selling almost came to halt but interesting to see that the gross-short continued to climb. It reached 180,000 lots, the highest since last August which tells us there are plenty of short positions yet to cover.  

This particularly evident following a week where both production and rig count dropped. While the technical outlook has improved as short-covering supports, the news that Libya's oil production has exceeded 1 million barrels/day for the first time in four years may have a dampening impact. 

Speculative positioning in WTI Crude oil
 
Current oil focus:
Current oil focus
 

— Edited by Clemens Bomsdorf

Ole Hansen is head of commodity strategy at Saxo Bank
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Commitments of Traders: Commodities

2y
Ole Hansen Ole Hansen
Funds cut bullish Brent crude oil bets by 29,000 lots to 200,000 lots, a 17-month low in week to June 27. The gross-short hit fresh record.
Total oil and product fund long reduced to 310 million barrels, the lowest January 2016 and down 800 million barrels from February record
2y
matsuri matsuri
great,waiting for short covering rally. this week would be good opportunity to this. US market closed on 4th. some traders will have holidays by end of week, positive report on inventories on Thursday and we are 2-3 dollars higher, maybe for moment but higher.
2y
Market Predator Market Predator
Hello Ole. Is it possible to assume except short covering on Oil also to return of active Bulls, because of driving season? I believe this might be key factor regarding Oil in Summer.
Or full storage supply and renewed players like Libya will dictate price in Summer?

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