15 August 2016 at 8:58 GMT
- Heavy-metal selling sees sector suffer first fall since end-May
- Natural gas selloff helps seal seventh consecutive weekly reduction
- Net shorts on WTI leave market exposed to short covering
- Renewed verbal interventions keep oil buoyed
When the Saudis talk, the oil market frequently listens. Photo: iStock
By Ole Hansen
Heavy selling of metals, not least copper and gold, triggered the first weekly reduction in this sector since late May. The energy sector was mixed with selling of natural gas being more than offset by the first weekly rise in crude oil since July 12.
Hedge funds scaled back commodity exposure for a seventh week with the net-long across 20 major commodities down 40% from the pre-Brexit high of 1.53 million lots.
Commodity exposure remain elevated in platinum, sugar and cotton.
WTI crude oil (NYMEX) buyers raised the net-long by 18% but the gross-short still hit a new record high leaving it very exposed to short-covering from the renewed verbal intervention, not only from Saudi Arabia on Thursday but also other major producers such as Russia.
The Russian energy minister Novak has in an interview with Asharq Al-Awsat newspaper said that Russia is consulting with Saudi Arabia and that the door remains open to more discussions on production freeze if needed.
Bullish gold bets were reduced on a combination of reduced longs and increased number of shorts. A weaker dollar failed to lift gold last week but the reaction to the aftermath of weak US data on Friday has raised the risk of a deeper correction and additional long liquidation.
The platinum net-long almost eclipsed the record high from July 2014 and palladium rose for a seventh week. Both are now exposed to profit taking should gold falter.
Funds held a record exposure to soft commodities of more than 400k lots. This followed buying of sugar to a new record and a near record for cotton. The sector ended down more than 4% last week with long liquidation hitting both sugar and cotton.
— Edited by Martin O'RourkeOle Hansen is head of commodities strategy at Saxo Bank