Investor demand for commodities continued during the reporting week which ended on June 7. The Bloomberg Commodity Index reached an eight-month high on June 8 after having rallied by 25% from the January low.
The odd one out was copper, which signals that the rally is more being driven by supply side adjustments than rising global demand which depends on growth, something which is currently lacking.
Very overbought conditions across the sector with the exception of metals helped trigger some profit taking towards the weekend, the extent of which will be captured in the next COT update.
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Speculative bets on rising commodities jumped by 19% to 1.4 million lots with all sectors seeing net-buying. Most of the increase was driven by the agriculture sector where another 128,474 lots were added bringing the combined net-long across the 13 agriculture commodities to 850,000 lots, a two-year high.
It has to be said that futures contracts on agriculture commodities tend to have a smaller contract value than those seen in energy and metals.
Aggressive buying of natural gas, gold, corn, wheat, and sugar more than offset the fact that the number commodities being sold outnumbered those being bought. Only copper, wheat and feeder cattle are currently net-sold while sugar longs extended to a new record.
Crude oil broke above $50/barrel last Tuesday following three consecutive days of buying. This helped trigger an extension of the gross-long by 6% to 311,170 lots. More significant, however, was the fact that it brought sellers out of hibernation and the gross short position jumped by 46% thereby triggering an overall 3% net reduction on the week.
Overbought conditions were probably one reason for tactical sellers to emerge. Another was the first weekly increase in oil rigs in the US since March. This was later in the week followed by another increase last Friday and the first weekly rise in production since March.
Multiple and major supply disruptions during May helped the market to rally by at least $5 more than would otherwise be warranted at this stage of the recovery. As a result of this earlier than expected price jump, US producers are beginning to get their heads above water.
While not persuading US producers to increase production just yet, it has nevertheless shown the market that oil much above $50/b at this stage will only be supported as long, non-voluntary supply disruptions exists.
After three weeks of heavy gold selling, funds were left scrambling to re-establish longs following the surprisingly weak US job report on June 3.
The net-long position jumped by 20% to 186,562 lots, still some 41,000 lots below what they owned just three weeks ago.
Copper is not well. While other commodities have rallied strongly, copper has been struggling to keep up as it is bogged down by oversupply and weak demand. What caused the weakness this past week was a significant rise in inventories registered at LME warehouses in Asia. Some of these supplies came from Chinese warehouses thereby raising question about demand in this for copper key market.
Copper is one of only three commodities where a net-short position is currently seen and it was the only one of these witnessing additional selling last week. The net-short increased by 19% to 37,120 lots, not far from the record of 38,951 from April 2013.
— Edited by Michael McKenna
Ole Hansen is head of commodity strategy at Saxo Bank