22 January 2018 at 9:01 GMT
- Hedge funds kept an overall unchanged position across 24 major commodities
- Buying of energy was offset by selling of copper, corn, wheat and sugar
- Combined oil long and key crops short both hit fresh records
By Ole Hansen
Hedge funds maintained an overall unchanged position across 24 major commodities in the week to January 16. Buying of energy, not least WTI crude oil and natural gas, was offset by selling of copper, corn, wheat and sugar.
The combined net-long in crude oil reached a new record of close to 1.1 billion barrels. The main contribution came from a 44,528 lots addition to the WTI crude oil net-long. As a result of the latest buying there are now almost 15 longs in WTI against each short. This is the highest read on the long/short ratio since mid-2014.
Rising non-Opec production continues to be offset by strong demand and falling inventories combined with a strong belief in Opec’s ability to maintain the agreed production cuts.
The resolve of the Opec+ group to maintain production cuts through to the end of 2018 was further strengthened following a weekend meeting in Oman. Strong co-operation
between Russia and Saudi Arabia, two countries often seen as adversaries on the global stage, is the main reason behind the successful implementation of the 2016 agreement to cut production in order to balance the market thereby supporting the price.
The flip side of the current deal is the inevitable surrender of market share to producers outside the Opec+ group. Not least the US with the IEA in its latest monthly oil market report talking about "explosive" growth in US shale oil production.
Looking ahead: Both WTI and Brent have stabilised following the month long surge. Resistance at $70 on Brent and $65 on WTI look firm for now with the market in need of consolidation. Some focus on fighting in Syria between Turkish and US backed rebels together with the weekly US inventory report on Wednesday.
Precious and industrial metals:
Gold buying continued but at a much reduced rate compare with the previous two weeks when funds bought 111,000 lots. The gross short rose for the first time in five weeks, a sign that sellers have started to emerge and look for correction following a 108 dollar rally since December 12.
Silver buyers paused as the semi-precious metal struggled to keep up with gold after running into a mini flash crash last Tuesday. Platinum, which has begun to claw back some of its discount to palladium, had another strong week of buying while funds exited HG copper following another failed attempt to break resistance above $3.3/lb.
Holdings in exchange-traded products backed by gold jumped to a five-year high last week ahead of the US government shutdown. Price corrections have so far been shallow with gold continuing to attract demand from investors seeking protection from rising inflation and the risk of a stock and especially bond market weakness. Geopolitics may receive some attention this week with Trump and many other world leaders meeting in Davos.
The grain sector continued to find new sellers following the latest stock report from the US government. The combined net-short across the three major crops reached a fresh record of 473,000 lots with almost half of that being corn. It does however raise the question of how much more selling can be found with the often uncertain spring planting season now just a couple of months away.
The soft sector with the exception of cotton remained under pressure. Not least sugar where suggestions from Brazil’s agriculture minister about removing tariffs on US ethanol imports spooked a market already reeling from rising production surplus
– Edited by Clare MacCarthy
Ole Hansen is head of commodity strategy at Saxo Bank