05 June 2017 at 7:58 GMT
- Funds cut bullish commodity exposure, especially natural gas, sugar and key crops
- Funds raised net long in oil by 7% after May 25 Opec meeting, mainly short-covering
- WTI price for 2018 has dropped by about 10% from the Q1 average
- Precious metals were bought for a second week
Short-covering drove an increase in the oil net long after
the May 25 Opec meeting. Photo: Shutterstock
By Ole Hansen
Hedge funds cut bullish exposure across 23 US-traded commodity futures and options by 13%, or 93,000 lots, in the week ending May 30. The reduction was primarily driven by selling of natural gas, sugar and continued selling of key crop futures, not least the soybean complex. Oil was bought despite a post-Opec price slump, and gold remained in demand.
In the aftermath of the May 25 Opec meeting, funds increased the net long by 7% as short positions got covered despite renewed price weakness.
The gross short position in the producer/merchant category, however, dropped to the lowest since January 3. This is an early indication that the renewed price weakness since the first quarter may start to impact the profitability of hedging among some producers. During the first quarter, the calendar year 2018 for WTI crude oil was avering $54/barrel. It has since dropped by around 10% to $48.6/b last Friday. Is a rig slowdown coming?
Natural gas was sold for a second week as funds continued to scale back what recently was a near record long. Milder-than-usual spring weather has boosted supplies, thereby putting the price under pressure.
Precious metals were bought for a second week as US dollar weakness, geopolitical worries and weaker economic data provided support. Positioning in gold and silver has picked up after both touched the five-year averages recently. In gold, the increase was driven by fresh buying as the multi-year downtrend from 2011 once again came within striking distance, while for silver it was short-covering following weeks of heavy selling.
The grain and soybeans sector net short hit a new record of 467,643 lots. All futures apart from Kansas wheat were sold with the net short in soybeans reaching a two-year high.
— Edited by John Acher
Ole Hansen is head of commodity strategy at Saxo Bank