Article / 08 May 2017 at 7:56 GMT

COT: Oil longs bail before slump, gold sellers emerge — SaxoStrats

Head of Commodity Strategy / Saxo Bank
Denmark
  • Hedge funds slash bullish commodity exposure
  • Energy sector hit hardest as oil longs fall by 20%
  • Copper spot price plunges on Chinese reform plans

China
China's reform plans threaten to impact housing demand and the metals sector in general. Photo: Shutterstock

By Ole Hansen

Hedge funds cut bullish exposure across 23 US-traded commodity futures and options by 12% or 92,000 lots in the week ending May 2. 

The energy sector was particularly hard hit with oil longs cut by 20% (just before the slump) to the lowest level seen since November 29, 2016. 

Silver selling accelerated while longs in gold saw the first reduction in seven weeks.

Speculative positioning in Commodities



















Speculative positioning in Commodities

























Funds cut bullish WTI crude oil bets by 20% ahead of the slump last Thursday when oil broke support at $47/barrel. The break below is likely to have further reduced the long-to-short ratio, something that is needed to help stabilise the market. 

In order to attract a recovery, initially driven by short-covering, oil needs to reclaim resistance at $47/b. 

An attempt was made to do just that overnight in Asia when comments from the Saudi energy minister about extending the cut deal into the second half and potentially beyond helped trigger a rally, but it fell short after reaching $46.98/b. 

Rising gasoline inventories triggered a surge in new short-selling. This resulted in the first net-short position since last August. 

Speculative positioning in WTI Crude oil
 
Silver selling accelerated as the price continued to weaken with the net-long being cut by one-third. A third week of selling has almost halved what just three weeks ago was a record long.

Gold selling (finally) emerged following six weeks of buying. Considering the weakness to gold in recent weeks, the 10% reduction has left the market exposed to further selling – not least considering the broad-based commodity slump seen after May 2 and as the Federal Open Market Committee left the door wide open for a June rate hike. 

Holdings in exchange-traded products have remained flat during the past week which could indicate that most of the selling seen so far has been speculative instead of real money. 

Some short-covering has been seen as French president Macron, an independent, now faces the monumental task of finding common ground with parliament following the June legislative election. Key resistance above at $1,250/oz, however, needs to be challenged before support returns.

COT: Metals
 
Just as copper buyers returned and bought 11,389 lots, the market reversed. After reaching $2.70/lb during the week in question it slumped straight back down and today it is trading below $2.50/lb support following Chinese trade data for April that showed a slowdown in Chinese copper imports. 

China's import of unwrought copper dropped 30% in April from March to a six-month low. This comes on top of last week's weakness which was driven by rising LME inventories and Chinese monetary tightening raising concerns about housing demand as the impact of the 2016 infrastructure surge begins to fade. 

The next area of support below between $2.45 and $2.44/lb.

COT: HG Copper
A short-covering frenzy in CBT and KCB wheat helped reduced bearish crop bets by 72,158 lots. Wheat surged just before May 2 as a late winter blizzard raised concerns about winter crop damage while further delaying the planting of spring wheat.

COT: Key crops

— Edited by Michael McKenna

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

2y
Ole Hansen Ole Hansen
Another way of looking at the oil position is through the long to short ratio. Last Tuesday it dropped to 2.86 which is below the 3.15 average seen during 2016. The rout since last Thursday is likely to have reduced this ratio even further with CTA and momentum sellers jumping on the break below $47/b.
While not signaling a reversal of the recent weakness it does give the market renewed upside potential once data, events or the technical picture turn more favorable
2y
Ole Hansen Ole Hansen
Oil has made two attempts to rally on verbal intervention today, first from Saudi Arabia overnight and this morning from Russia. Both energy ministers talked about extending the cut deal beyond 2017. The market however remains heavy with a strong line of resistance at $47 (WTI) and $50 (Brent) providing resistance and an area ahead of which sellers continue to emerge.
The market is in wait and see mode ahead of monthly reports from IEA Tuesday and Opec Thursday when some more clarity on global stock (reduction) and demand is being sought.
Oil Steadies as Saudi Arabia, Russia Say Cuts May Last Into 2018: https://www.bloomberg.com/news/articles/2017-05-08/oil-extends-rebound-as-selloff-seen-ignoring-tightening-supply
2y
Vladimir M Vladimir M
It looks like wasting money from fond of crude price support
2y
Vladimir M Vladimir M
moreeven it looks like that money go own pocket

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