Dollar and Metals Sold, Energy Bought Ahead of FOMC

Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial.

The below summary highlights futures positions and changes made by hedge funds across commodities, forex and financials up until last Tuesday, June 15. A week that covered the period up until last week’s FOMC meeting and the hawkish surprise it delivered. Apart from a weaker dollar which attracted additional short selling, some of the other markets, most noticeable commodities had already started to see rising risk adversity, while bond yields crept lower before starting a rollercoaster ride which eventually today has led it back to unchanged pre-FOMC levels. The Bloomberg commodity index traded softer by 2.2% as the rotation out of agriculture and metals into energy continued.

Commodities

The commodity sector saw a small amount of net selling ahead of last week’s FOMC meeting, but behind the 1% reduction to 2.4 million lots we found a week where speculators continued to rotate out of agriculture and metals, both industrial and precious, and into energy, especially crude oil. Chinese efforts to curb industrial metal prices, lower gold prices on reduced inflation expectations as the market “buy” into the transitory message from central banks, and improved weather and growing conditions in the U.S. have all led to long liquidation and reduced appetite for exposure in these sectors.

Energy

The combined net long in oil and fuel products (ex. natural gas) reached 977k lots, the biggest bet on rising energy prices since October 2018. While industrial metals have suffered what looks like a short-term setback on rising market intervention by Chinese authorities and reduced focus on reflation, the energy sector has increasingly become the go to commodities. This in the belief that OPEC+ in the near-term will maintain market tightness as global demand continues to recover, and later on due to increased concerns that lack of CAPEX spent on new production could leave the market undersupplied from late 2022 and onwards.

The combined net long Brent and WTI crude oil reached 737k lots, again a level of exposure that was last exceeded in October 2018. A tightening spread to Brent and speculation that storage levels at Cushing, the WTI futures delivery hub, could shrink further amid strong Midwest refinery demand helped drive a 35% reduction in the gross short, thereby supporting a spike in the long/short ratio to a three-year high at 22.8 longs per one short position. While highlighting the risk a market at risk of becoming one-sided it also shows the strong belief in higher prices currently being exhibited by investors.

Metals

Bullish gold bets were scaled back for a second week with profit taking and fresh short selling emerging ahead of the FOMC meeting and following the recent rejection above $1900. The 10% reduction reduced the net long to 114k lots, a four week low. Silver saw a small amount of buying while copper longs were cut to just 20k lots, a one-year low and some 71k lots below the peak from last October. Once the weak technical outlook, supported by an expected improvement in the fundamental outlook, starts turning the price may see a strong bounce from buyers returning.

Agriculture

The grain and soybean sector continued to deflate with speculators cutting the combined net long in corn, wheat and soybeans by 15% to 352k lots, the lowest since last October. While the wheat net-short extended to 8.4k lots it was corn and not least soybeans that saw most of the selling. This on a combination of improved weather raising production expectations and potentially a reduction in demand for biofuels to be blended with gasoline.

Forex

In forex, the flows across ten IMM currency futures and the Dollar Index were very mixed but overall they resulted in continued dollar selling with the net short reaching a three-month high at $19.3 billion.

However, as can be seen from the table below, speculators were in general risk-off mode across the major pairs with both long and short positions being reduced. This just the day before the FOMC sprung a hawkish surprise which helped send the Greenback sharply higher to record its fourth straight week of gains, thereby challenging the short dollar consensus trade.

What is the Commitments of Traders report?

The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class.

Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and other
Financials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and other
Forex: A broad breakdown between commercial and non-commercial (speculators)

The reasons why we focus primarily on the behavior of the highlighted groups are:

  • They are likely to have tight stops and no underlying exposure that is being hedged
  • This makes them most reactive to changes in fundamental or technical price developments
  • It provides views about major trends but also helps to decipher when a reversal is looming

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

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This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank Group through RSS feeds on FX Empire

Crude Oil Hits Cycle High on Rising Investment and Physical Demand

What is our trading focus?

OILUKAUG21 – Brent Crude Oil (August)
OILUSJUL21 – WTI Crude Oil (July)


Commodities of most colors continue higher on a combination of expectations for a post-pandemic growth sprint triggering supply bottlenecks, green transformation focus, weather worries, and increased investment demand from speculators and investors enjoying the current momentum while seeking a hedge against the risk of accelerating inflation

The year-on-year rate of change has reached levels not seen for the past couple of decades, and with rising input cost forcing more and more companies to pass on the cost to consumers, we are increasingly seeing the risk of the current inflation spike not being the transitory phenomenon being touted by major central banks. Once inflationary pressures take hold it becomes very difficult to reverse and the risk being a self-feeding loop that may end up driving commodity prices even higher over the coming months and quarters, hence the increased focus on a new super-cycle.

While rising physical demand has been seen as the main reason behind the continued run up in commodity prices, investment demand plays an equally important role. What they all have in common is that a vast majority of investment flows from asset managers and hedge funds into commodity investments will eventually find their way to the futures market. These investments flows which often are initiated for reasons that have nothing to do with individual commodity fundamentals is therefore adding an additional layer of support.

Examples of motives why asset managers decides on a broad commodity investment, apart from the fear of missing out (FOMO) can be momentum and hedging against rising inflation and a weaker dollar, both triggering reallocations from other asset classes.

Three of the best-known commodity indices that in some form are tracked by billions of dollars are the Bloomberg Commodity index, the S&P GSCI, as well as the DBIQ Optimum, yield diversified commodity index. Exchange-traded fund providers such as Invesco, iShares, iPath, and WisdomTree offer different varieties of these commodity indices. Some aim to track the index with no discretion while others look to optimize the return by finding the most opportunistic location on the futures curve to invest.

This broad-based commodity ETFs continue to see strong demand, and a Bloomberg article highlights the recent surge in fund flows into the iShares GSCI Commodity Dynamic Roll Strategy ETF (Saxo ticker: COMT:xnas). During the past couple of weeks the ETF has seen assets more than double to the current $2.3 billion. Looking at the overall ETF market for broad-based exposure the article reports that $7.3 billion of allocations so far this year has taking assets to $17 billion overall.

As mentioned, providers of these ETFs will typically hedge their exposure in the futures market, thereby giving these markets an underlying bid as long demand continues to grow. As per the table above and using the mentioned COMT:xnas as an example we see that for each dollar invested around 55 cents goes into energy. Digging a bit deeper we find almost 40% being invested in WTI and Brent. Such flows help to explain why crude oil – obviously supported by OPEC+ keeping supplies tight – continues to be bid with very shallow corrections seen during the past few months.

The tightening market conditions that has emerged during the past six months is another reason why asset managers once again, and for the first time in a number of years, view commodities as an interesting investment case. With several commodities seeing tightening conditions their forward curves have moved in backwardation, meaning the front-month contract trades at a premium to the deferred.

The higher the spread, the higher the yield that can be harvested when rolling futures contracts out the curve. The chart below shows the average 12-month roll yield of 26 major commodity futures, and it shows how we just recently moved out of contango which for the past six years meant investors were left with a monthly cost of holding a position due to the negative roll yield.

We highlighted the energy sector as being the main benefactor of investment flows into ETFs and it probably helps to explain why crude oil has stayed bid without much in terms of major correction for several months now. Crude oil trades higher with WTI settling above $70 yesterday for the first time since October 2018 while Brent has broken a barrier of resistance at $72. Supported by robust demand in China, US and Europe and easing virus impact elsewhere, especially in India.

In addition, the API last night reported a 2.1 million barrel drop in US crude stockpiles, and if confirmed by the EIA today it will be the third weekly decline. With EIA’s Short-term Energy Outlook, published yesterday, only seeing moderate growth in US shale production, OPEC+ can increasingly control the price, given they are sitting on nearly 6 million barrels of spare capacity which they can release at will.

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

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This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank Group through RSS feeds on FX Empire

Subdued Fund Buying Despite Strong Commodity Gains

Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial.

The below summary highlights futures positions and changes made by hedge funds across commodities, forex and financials up until last Tuesday, June 1. A week that saw S&P 500 trade mostly sideways near its record high while the technology sector lost steam. Treasury yields rose ahead of jobs data with the market pondering for how long the Fed can continue adding support amid rising inflation. The dollar held steady while the commodity sector recovered strongly from the May correction.

Commodities

The commodity sector saw buyers return following the May correction with the Bloomberg Commodity index rising 3%. All sectors apart from precious metals and livestock recorded strong gains led by crude oil, copper, corn and coffee. In response to these developments hedge funds and large money managers increased bullish bets across 24 major commodity futures by 3% to 2,358k lots.

Given the strength of the recovery a relatively small increase that was led by crude oil (25k), gas oil (17k), natural gas (+11.7k), corn (21.9k) and sugar (12.5). Other contracts such as copper (-6.3k) and both wheat contracts (-5.7k) were sold despite recording strong price gains. Potentially a sign that investors despite being dictated by the price action to be long are feeling somewhat uncomfortable with prices at multi-year highs and breakeven yields (inflation) that has been drifting lower during the past three weeks.

Energy

Most of last week’s commodity buying was concentrated in the energy sector, most noticeable crude oil and gas oil. OPEC’s bullish demand outlook for the second half combined with the OPEC+ groups ability to control the price, helped drive Brent above $70 while WTI reached levels last seen in 2018. In response to these developments hedge funds increased their combined crude oil net long by 25.2k lots to 649.5k, a three week high but still some 88k below the recent peak in February.

While the overall increase in both WTI and Brent was primarily driven by fresh buying, the bulk of the buying occurred in WTI. This in response to tightening US market amid increased demand for fuel and low stocks at a time where production is expected to show a much slower growth trajectory than the one we witnessed during previous cycles of rising prices.

Agriculture

Despite recovering strongly from the late May correction, only small changes were seen in soybeans and wheat. Corn received most of the attention with the 11% price spike driving a 21.8k lots increase, mostly due to short covering with potential buyers showing a degree of hesitancy as we move into the US growing season. In soft commodities, buying benefitted sugar, cocoa and coffee, and just like corn the net buying in coffee was primarily due to the short covering with buyers hesitating chasing the 7% rally seen during the week.

Metals

Gold buying ran out of steam with long accumulation slowing to just 2.9k lots, a far cry from the 61.3k lots that was net bought the previous three weeks. Having surged higher by 240 dollar since early April on a combination of technical buying and short-covering from large trend following funds, the lack of fresh buying last week could indicate that this initial demand has now been met. Also worth noting the reporting week up until last Tuesday did not take into account the US economic data related price swings that hit the market towards the end of last week. At 129k lots, the gold long remains well below the most recent 284k lots peak from March last year.

Elsewhere in the metal space, silver longs were reduced for a second week while copper selling extended to a fourth week. During this time the net long has slumped by 58% to just 27.6k, the lowest bet on rising copper prices since last June when the rally had only just started to gather momentum.

Latest: Gold trades softer in early trading following an end of week rollercoaster ride where prices first slumped on emerging profit-taking, only to bounce back on Friday following what looked like “Goldilocks” US payroll date. Gold’s so far shallow correction following the strong rally since early April potentially highlighting the risk that all is not done yet on that front. The first key downside support level that will determine the underlying strength of the market is the 200-day moving average at $1842. Focus on the dollar and whether yields can maintain their Friday drop, President Biden’s spending plan and the market reaction to the G7 tax proposal.

Forex

In forex, the flows in the week to June 1 were mixed while the overall sentiment was still skewed towards additional dollar selling. The net short against ten IMM futures and the Dollar Index reached a 12-week high at $17.7 billion after speculators net sold $900 million. Despite trading softer on the week, speculators continued to buy euros (5.3k lots) with buying also seen in JPY (3k), CAD (3.9k) and CHF (1.5k), while selling reduced the sterling long by 6.5k lots.

What is the Commitments of Traders report?

The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class.

Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and other
Financials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and other
Forex: A broad breakdown between commercial and non-commercial (speculators)

The reasons why we focus primarily on the behavior of the highlighted groups are:

  • They are likely to have tight stops and no underlying exposure that is being hedged
  • This makes them most reactive to changes in fundamental or technical price developments
  • It provides views about major trends but also helps to decipher when a reversal is looming

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

Start trading now

This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank Group through RSS feeds on FX Empire

Copper and Grains Led Fund Reduction in Commodities

Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial.

The below summary highlights futures positions and changes made by hedge funds across commodities, forex, and financials up until last Tuesday, May 25. A week where a steady dollar near a four-month low, and lower bond yields, led by deduced inflation expectations helped send volatility down and stock markets higher. The reporting week also caught the backend of the recent correction in commodities, primarily due weaker industrial metals on Chinese intervention fears and a sharp correction in grains.

Commodities

The Bloomberg Commodity index dropped 1.9% during the reporting week to last Tuesday, with heavy losses in industrial metals (-4.2%) and grains (-5.2%) offsetting continued gains in precious metals and livestock. In response to these developments, hedge funds cut bullish bets across 24 futures contracts by 6% to 2,286k lots, a six-week low. With the exception of gold and WTI crude oil selling was broad with the biggest reductions seen in natural gas, Brent crude oil, HG copper, soybeans and corn.

Energy

Speculators bought WTI crude oil (+18k lots) and sold Brent (-27.5) thereby leaving the combined net down 9.5k lots on the week at 624k lots, the lowest since January. The increase in WTI bets was driven by a rising US fuel demand ahead of the Memorial Day weekend that kicks of the country’s summer driving season, the lowest gasoline stockpiles in almost three decades together with crude stockpiles at Cushing, the WTI delivery hub, some 17% below the five-year average. Brent, the global benchmark, meanwhile saw net selling due to the risk of rising Iranian production together with virus outbreaks in Asia curbing demand.

Latest

Crude oil futures led by WTI (OILUSJUL21) remain supported as the U.S. summer driving season begin, while Brent (OILUKAUG21) continues to struggle breaking above $70 ahead of another round of Iran nuclear negotiations and Tuesday’s OPEC+ meeting where the group is expected to confirm an already agreed 0.8 million barrels per day increase for July. Until the market receives more clarity about the outcome of these, the upside potential beyond the March high at $71.40 seems limited.

Agriculture

The grains sector suffered another week of big price corrections and reductions in bullish bets. Led by soybeans, corn and to a lesser extent wheat, the combined net-long dropped 10% to a seven-month low at 412k lots, with the CBOT wheat position once again returning to almost flat.

Metals

Gold buying extended into a fourth week with the net long rising by 20k lots to a four-month high at 126.9k. It is worth noting that most of last weeks change was driven by a 27% reduction in the gross short position to the lowest since last July. Another sign that long term trend systems, the largest position holders in the trend system universe, continue to scale back short positions, thereby providing a constant bid in the market. Especially after the price broke the downtrend from the August high and after the price recently recovered back above its 200-day moving average.

Bullish HG Copper bets meanwhile slumped 35% to 33.9k lots, the smallest bet on rising prices since last July. The main culprit behind the reduction and copper’s recent 9% correction being China’s attempt to curb commodity prices and hoarding in the domestic market. An attempt both Goldman Sachs and Citigroup expect will fail due to the speed of the rebound in demand in advanced economies, particularly the U.S.

The current gold rally has left both platinum and silver trailing, and during the week both metals saw net selling, most noticeable being the 17% reduction in the platinum net long to a 5-1/2 month low at 14.6k.

Latest

Gold (XAUUSD) is heading for its biggest monthly gain since July as inflation remains the key focus, while Bitcoin at the same time is heading for its worst month since 2011. The recovery in ETF holdings backed by bullion and fund positions in futures remain subdued, a sign that many investors remain unconvinced about the short to medium term direction.

However, Friday’s failed downside attempt could indicate that constant bidding and short covering from long term trend systems are ongoing. Focus this week on Friday’s job report and whether gold can break above $1923, the 61.8% retracement of the August to March correction. Key support at in the $1845-55 area.

Forex

In forex, the flow in the week to May 25 was skewed toward continued dollar selling as the Bloomberg Dollar Index came within a whisker of the January low before seeing a small recovery in the days that followed the reporting period. Following six weeks of continued selling the Greenback short against ten IMM currency futures and the Dollar Index reached a three month high at $16.8 billion. There was some small selling of AUD and CAD but overall buyers had the upper hand, notably in euro (4.1k lots or $0.6bn equivalent), sterling (5.8k or $0.5 billion) and CHF (3.1k or $0.3bn).

What is the Commitments of Traders report?

The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class.

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

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This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank Group through RSS feeds on FX Empire

Gold Long Extends Further; Ag Selling Picking Up Speed

Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial.

The below summary highlights futures positions and changes made by hedge funds across commodities and forex up until last Tuesday, May 18. A relatively quiet week ahead of Wednesday’s crypto collapse and FOMC minutes saw stocks, bonds and the dollar trade softer, while the biggest changes were seen across the commodities sector where the month long synchronized rally increasingly showed signs of running out of steam.

Commodities

The Bloomberg Commodity index dropped 0.7% on the week as an emerging correction across agriculture commodities, led by soybeans and corn off-set gains in energy and precious metals. In response to these developments, hedge funds cut bullish commodity bets for a second week with the total net long across 24 futures contracts falling by 4% to a four-week low at 2.4 million lots. Broad selling across all sectors except precious metals was led by corn (25.3k lots), soybeans (25.2k) sugar (20.8k) and crude oil (22.2k) with most of the buying concentrated in gold (11.3k) and natural gas (12.1k).

Commodities Chart

Energy

Speculators cut bullish oil bets for a second week with the combined net long in Brent and WTI falling by 22.2k lots to 634k lots to a six-week low. In Brent, the reduction was driven by increased short selling with the gross short rising to the highest since November. The short-term outlook has once again deteriorated with the prospect for rising Iran production and OPEC+ production increases hitting a market still lacking the synchronized global recovery in in demand. Despite a strong recovery in fuel demand across the U.S. and Europe, continued Covid outbreaks in Asia will continue to impact the short-term outlook and not least the recovery in jet fuel demand, which looks set be very slow with restrictions and lack of interest flying intercontinental not going away anytime soon.

Fuel products continued to be bought with the net longs in gas (143k lots) and NY Harbor ULSD (24.5) both reaching the highest levels in 30 months. Natural gas meanwhile saw fresh buying as the contract made another and so far unsuccessful attempt to gain a foothold above $3.

Metals

Gold’s new found momentum helped drive a third consecutive week of fund buying, which resulted in the net long rising 12% to 107k lots, a 16-week high. Gold has not managed to put together a three week buying spree of this magnitude since last June, and it highlights the continued improvement in the technical outlook during a period of stable Treasury yields, a weaker dollar, and not least heightened volatility across crypto currencies. The improvement in the technical outlook was further confirmed this past week by the move above the 200-day moving average, last at $1845, and the breaching of the downtrend from the $2075 record high last August.

Silver gave back some its recently earned relative strength against gold in response to continued profit taking hitting the up some of the up until recently highflying industrial metals. The net long was cut by 3% to 46.5k lots while a second week of net copper selling reduced the net long there by 15% to 51.9k lots.

Agriculture

Emerging profit taking helped drive a 9% reduction to 963k lots in the net long held in ten major grains and soft commodities. Most noticeable was the accelerated net selling across the three key crops where 25k lots reductions in both corn and soybeans triggered a reduction in the net long to a December low at 458k lots. The bullish soybean momentum has eased with planting in the U.S. progressing at speed while wheat’s two-week decline of more than 11% has been the result of heavy rain in Kansas, the top growing state raising the prospect for record yields. Corn meanwhile managed to hold steady supported by tight supply with focus on Chinese buying, currently running at levels never seen before, and increased demand from the renewable fuel industry.

Agriculture

Forex

Mixed flows in the week to May 18 resulted in an unchanged dollar short position against ten IMM currency futures and the Dollar Index. Buying of EUR (5.9k lots) and CAD (7.5k) being offset by selling of JPY (9.2k) and GBP (3.3k).

Forex Chart

From a ten-year high at $36.8 billion on January 19, the dollar short against the mentioned futures contracts dropped to a $5.2 billion low five weeks ago before short-sellers re-emerged to take it back to the current $15.5 billion.

DXY

What is the Commitments of Traders report?

The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class.

Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and other
Financials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and other
Forex: A broad breakdown between commercial and non-commercial (speculators)

The reasons why we focus primarily on the behavior of the highlighted groups are:

  • They are likely to have tight stops and no underlying exposure that is being hedged
  • This makes them most reactive to changes in fundamental or technical price developments
  • It provides views about major trends but also helps to decipher when a reversal is looming

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank Group through RSS feeds on FX Empire

Commodities Remain the Hot Property of 2021

The “everything rally” in commodities continues to gather steam with the Bloomberg Commodity Spot index rising for the fifth straight week to reach its highest level since 2011. Spurred on by multiple factors from a vaccine-led rebound in global growth, transportation bottlenecks crimping supplies, weather concerns in key growing regions along with rising inflation concerns and a speculative frenzy triggering increased investment demand.

All the major commodities traded higher this past week led by iron ore, Arabica coffee, corn and lumber. Metals of all colors rallied as well with copper reaching a record high while gold, supported by silver, managed to break above $1800. The energy sector came bottom with crude oil, rightfully so, struggling to break higher with virus outbreaks in Asia creating a very uneven demand recovery.

On a macroeconomic level, both the dollar and US Treasury yields provided further support with the Greenback trading softer and nominal yields holding steady. The latter receiving a great deal of attention with rising inflation focus sending 10-year breakeven yields to an eight-year high and real yields back down towards minus 1%.

One of the biggest concerns related to the current surge in global commodity prices is the impact rising food costs have on those populations and economies that can least afford it. The UN FAO’s Global Food Price index, which tracks a basket of 95 food quotations from around the world, surged higher in April to record an annual rise of more than 30%. Food inflation has not risen this fast since 2011 – when higher food prices helped trigger the Arab Spring –  with all sectors rising led by a 100% jump in edible oils, sugar 58% and cereals at 26%.

Grain futures in Chicago remain the key engine behind the continued rally across the agricultural sector. Persistent drought concerns in Brazil and strong demand from animal feed producers have buoyed the corn market while also adding renewed support to sugar and coffee prices. Corn, wheat and soybeans all trade at fresh eight-year highs, while Arabica coffee has reached a four-year high above $1.5/lb

Technical comment on Arabica coffee: After breaking previous resistance at $1.40, the uptrend has accelerated with several indicators supporting the underlying bullish sentiment. To demolish the current positive outlook, a close below $1.3950 is needed in the short term while the longer-term bullish picture remains intact above $1.20. Upside focus now the 2017 high at $1.57.

Source: Saxo Group

Copper reached a record high above $10,300 per tons on the London Metal Exchange and $4.72/lb in New York. Copper is front and centre in the rally that is currently driving raw materials to multiyear or even record highs. Being an integral part of the green transformation process through the rollout of millions of electricity-hungry vehicles over the coming years, copper has surged higher on a combination of both physical but also paper demand from investors looking for inflation hedges in markets with a strong fundamental outlook. An outlook that according the Glencore and Trafigura, two physical commodity titans, could see the need for 50% higher prices in order to provide mining companies the economic incentive to increase the search for additional supply.

Technical comment on High Grade: Copper’s strong uptrend during the past year has seen the price not only double but even accelerating since its latest correction last month. On daily charts, RSI divergence seems to be building which could indicate the short-term risk of the uptrend becoming exhausted, however, a trend change is not in the cards.

Source: Saxo Group

Brent and WTI crude oil both lagged the momentum seen across metals and agriculture, and despite increased calls for +70 dollar Brent, the market has sensibly adopted a wait-and-see approach. Before drifting lower, Brent got tantalizing close to $70/b, a level it briefly breached two months ago before suffering a 15% correction. The market, already supported by investment demand, has also increasingly been focused on reopening’s in Europe and the U.S. driving a strong recovery in fuel demand.

Oil bulls, however, may have to remain patient given ongoing production increases from OPEC+, the prospect for a renewed Iran nuclear deal leading to increased production, and not least the current risk to demand in parts of virus-hit Asia. Since late March, Brent crude oil has traded within a four dollar wide uptrend, currently between $66.50 and $70.50.

Precious metals

Having failed on a handful occasions during the past couple of weeks, gold finally managed to mount an attack strong enough to take it above $1800. While lower U.S. real yields and a softer dollar provided the fundamental tailwind the yellow metal needed support from in-demand silver, one of the best performing commodities this week. During the past month, the continued rally across industrial metals have supported silver relatively more than gold. This can be seen through the gold-silver ratio which has been declining since late March.

Silver is currently trading within a rising channel and after hitting the upper end at $27.55 it may need to spend some time consolidating before mounting a fresh upside attempt towards the 2021 high at $30. In order for gold to continue higher, it first needs to establish support above $1795 before chasing after long-term trend following short positions. The next level of upside interest is $1851, the 200-day moving average and 61.8% retracement of the January to March sell-off.

Source: Saxo Group

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

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This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank Group through RSS feeds on FX Empire

Silver Takes Charge with Gold a Reluctant Follower

What is our trading focus?

Spot Gold (Ticker: XAUUSD)
Spot Silver (Ticker: XAGUSD)
Gold/silver ratio (Ticker: XAUXAG


Silver broke out of its triangular formation yesterday to record its best day since February 1 when it briefly spiked above $30. Gold meanwhile got rejected once again as it continues to struggle finding enough momentum to break above the key $1800 level. Overnight both trades softer with the stronger dollar off-setting a ten-week low in U.S. 10-year real yields at –0.83%.

Rising growth expectations together with the prospect for governments supported infrastructure plans as well as the green transformation and reflation focus have all helped drive a strong rally across industrial and platinum group metals in 2021. Silver has been caught between two chairs with the market struggling to work out whether the impact from industrial metals should hold a bigger sway than struggling gold. The latter due to its sensitivity towards movements in rates and the dollar, both of which up until recently had been going higher.

On the back of the recent strong performance across industrial metals, silver ended up taking the lead with yesterday’s trigger being the combination of weaker than expected U.S. ISM Manufacturing and higher ISM Prices Paid. The renewed pull from surging industrial metals can be seen through the gold-silver ratio which has been in a downtrend during the past month. From above 70 ounces of silver to one ounce of gold on April 1 it has since declined to a seven-week low at 66.5.

Comment from Kim Cramer Larsson, our technical analyst:
“Silver rallied almost 4% yesterday and closed above the resistance level around $26.65/oz, thereby confirming the uptrend which started back in early April. RSI is above the 60 threshold which support the bullish sentiment and only a close below $25.7 will demolish this short-term bullish scenario.”

Source: Saxo Group

While the double bottom in gold was confirmed on the recent break above $1765, the lack of follow-through and now multiple rejections below $1800 has left traders somewhat bewildered. The short-term technical outlook however still looks promising above $1765 and a break above $1800 could signal a move towards the $1818 and $1833, an area that undoubtedly would begin to shake out long-held trend following short positions.

 

Source: Saxo Group

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank Group through RSS feeds on FX Empire

Speculators Keep Piling Into Agriculture Commodities

Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial.

The below summary highlights futures positions and changes made by hedge funds across commodities, forex, bonds and stock indices up until last Tuesday, April 27. A week where U.S. index futures resumed their ascent, the dollar continued lower while US Treasury yields ticked higher, while staying within their established ranges. Commodities surged higher led by very strong gains in grains and soft commodities.

Commodities

Money managers increased bullish commodities bets with the total net long across 24 major commodity futures rising by 4% to 2.5 million lots, representing a nominal value of $137 billion. This in response to a 3.6% rise in the Bloomberg Commodity index to a fresh ten year high. The bulk of the increase was concentrated in grains and soft commodities which rallied by 8.6% and 7.3% respectively. The biggest individual position increases was seen in sugar, coffee, wheat, gas, oil and copper.

Energy

The combined net long in crude oil reached a six-week high at 677k, with the increase being led by WTI while speculators kept an almost unchanged position in Brent, primarily due to an increased amount of naked short selling. The biggest change was seen in gas oil where the net long came close to a one-year high.

Latest: Crude oil futures trade lower for a second day with the uneven demand recovery creating a somewhat challenging outlook. In India, April gasoline demand fell to the lowest level since August and increased curbs on mobility may trigger further declines into May. This at a time when higher fuel consumption is being recorded in the U.S., China and the U.K. and OPEC+ during the next three months begins to add barrels back into the market. The outlook is further being clouded by uncertainty about U.S. production growth and Iran nuclear negotiations where a deal could trigger rising production. For now, Brent crude oil trades within an ascending channel, currently between $64 and $69.

Metals

A relatively quiet week in precious metals with gold’s failure to build on the recent break above $1765 attracting fresh short selling resulting in the bulk of the 6k reduction in the net long being driven by new short positions. Silver length increased by 8% and platinum by 25% on tailwinds from surging industrial metals. The 6.3% rally in HG copper helped attract new longs with the net rising by 23% to 55.5k lots, still well below the December peak at 91.5k lots and the 2017 record at 125k lots.

Latest: Gold (XAUUSD) and silver (XAGUSD) continue to frustrate bulls and bears alike given their inability to break current ranges. Both trading higher today after surviving another downside attempt on Friday when the dollar suddenly jumped. US Treasury yields continue to trade range bound with rising breakeven (inflation expectations) being offset by lower real yields. Speculators cut length in COMEX futures last week while ETF holdings remain stuck near a one-year low. Current range in gold being $1755 to $1800.

Agriculture

Most of the speculative buying last week was concentrated in the agriculture sector (ex. livestock) with most grains and softs contracts seeing strong gains. Most noticeable being the strong gains in corn, wheat, sugar and coffee with dry weather in South America and the U.S. plains hurting the production prospects. The combined long in corn, soybeans and wheat reached a fresh record and with the latter well below previous peak positions, further length could be added over the coming weeks. In softs, the coffee long almost doubled while the sugar long jumped by 15% to 258k lots, the third highest exposure on record.

Latest: The Bloomberg Grains Spot index, already at an 8 year high continues higher today led by corn (CORNJUL21) and (WHEATJUL21). In corn, the spread between the July (old crop) and December (new crop) contracts has widened to 115 cents per bushel, and it highlights the current stress in the spot market as a powerful La Nina disrupts harvests in Brazil with dry weather cutting the production outlook by 8% to 104m tons. Adding to the current unease has been record Chinese imports while US planting progress and weather developments will be watched for clues as to the direction of the new crop contracts, such as December. Weekly U.S. planting progress data due later at 20:00 GMT

Forex

Broad speculative dollar selling lifted the net short against ten IMM currency futures and the Dollar Index by 30% to $10.3 billion, a six week high. The dollar was sold against all the major currencies with the bulk of the change being led by short-covering in Japanese yen where 11k lots ($1,3 bn equivalent) was bought.

What is the Commitments of Traders report?

The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class.

Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and other.

Financials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and other.

Forex: A broad breakdown between commercial and non-commercial (speculators).

The reasons why we focus primarily on the behavior of the highlighted groups are:

  • They are likely to have tight stops and no underlying exposure that is being hedged.
  • This makes them most reactive to changes in fundamental or technical price developments.
  • It provides views about major trends but also helps to decipher when a reversal is looming.

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

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This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank Group through RSS feeds on FX Empire

OPEC+ Set to Open Taps on Firm Crude Oil Market Expectations

What is our trading focus?

OILUKJUN21 – Brent Crude Oil (June)
OILUSJUN21 – WTI Crude Oil (June)


Crude oil reacted very calmly to the OPEC+ decision to proceed with plans to add more barrels from May and onwards while a surprise 4.3-million-barrel increase in oil stocks reported by the API was offset by equally large reductions in fuel stocks.

Despite a virus resurgence in Asia, led by India, which may cut the short-term demand outlook for fuel, OPEC+ still expects world oil demand will rebound by 6 million barrels/day this year. Agreeing with this assumption we find Goldman Sachs who sees 80 dollar oil within six months based on expectations for the biggest demand increase ever seen for a six month period. With these expectations in mind OPEC+ agreed to proceed with its roadmap for increasing output by 2 million barrels/day over the next three months.

While demand is expected to rise strongly, the persistence of Covid-19 cases rising in a number of countries, most noticeable in India and Latin America, raise the risk of another false start as already seen on a couple of occasions in December and March.

Brent has been in a recovery mode since the March sell-off with the price stuck in a five dollar upward sloping range currently between $63.50 and $68.50. Inside this range, the 21-day moving average, currently at $64.90 has been providing some local support.

In our Q2 outlook we wrote: “While Brent is likely to end 2021 somewhere in the $70’s we remain skeptical about the timing as we watch a market that is increasingly in need of a time to cool off and to consolidate. Whether it will be given such a break depends on the speed with which OPEC+ adds barrels back into the market and a continued vaccine-led recovery in global mobility”.

Until we see a meaningful suppression of the virus, we see Brent struggling to break above the January 2020 high at $71.75. With continued outbreaks seen across the world, jet fuel demand, which pre-covid accounted for close to 10% of global demand, is likely to see a prolonged road to recovery, while diesel (economic activity) and gasoline (rising mobility and avoidance of public transportation) look set to continue to rise strongly.

Before today’s FOMC meeting which may impact fuel prices given the link to the dollar, Energy Information Administration will publish its Weekly Petroleum Status Report at 14:30 GMT. Last night the American Petroleum Institute showed a bigger than expected jump in crude oil stocks being offset by equally bigger reductions in fuel stocks. The market will also be looking for further signs of increased mobility through the implied demand through products supplied. Especially gasoline which is getting tantalizing close to break above the psychological 9 million barrels/day mark. As per usual I will published the result and charts on my Twitter profile @ole_s_hansen.

Source: Bloomberg, EIA, API & Saxo Group
Source: Bloomberg, EIA, API & Saxo Group

For a look at all of today’s economic events, check out our economic calendar.

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

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This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank Group through RSS feeds on FX Empire

Broad Commodity Buying Despite Covid Worries

Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial.

The below summary highlights futures positions and changes made by hedge funds across commodities, forex, bonds and stock indices up until last Tuesday, April 20. A week where U.S. index futures fell in response to a slump in Asian stocks amid rising virus cases. The commodity sector meanwhile recorded a 3.2% gain on the week with gains seen across most sectors. Lower nominal and real yields helped weaken the dollar with narrowing rate differentials to other currencies also supporting fresh selling of the Greenback.

Commodities

Money managers responded to a weaker dollar, lower real yields and weather worries by increasing bullish commodity bets by 6% to 2.4 million lots, a five-week high and the biggest weekly addition since last October. The fact the sector experienced this amount of buying despite the drag from the worsening virus outbreaks in nations including India, highlight the current strong price momentum and resilience. Speculators instead chose to look beyond current worries and potential demand headwinds towards a post-pandemic recovery driven by strong growth, the green transformation theme and weather worries triggering the tightest market conditions in a decade.

Chart Commodities

Energy

Crude oil’s recent breakout but subsequent failure to gain momentum due to renewed virus worries in Asia saw the combined net-long in crude oil rise by just 9,134 lots to 670k lots. Buying of Brent being offset by selling of WTI, primarily due to fresh short selling.

Latest

Crude oil trades softer as the dramatic virus flare-up in India may cut its fuel demand by 20%, thereby offsetting a continued recovery in demand from U.S. and China, the worlds’ top two consumers. However, despite the prospect for additional OPEC+ barrels hitting the market next month, a firming backwardation in Brent, the global benchmark, still points to a market that can absorb additional supply as fuel demand continues to grow into the second half. Technical levels in Brent are $68 to the upside while support is being defined by the 21- and 50-day moving averages just below $65. Apart from further developments in India, the focus this week will be on Wednesday with FOMC and OPEC+ meetings potentially setting the direction.

Metals

Buyers returned to most metals, both precious and especially industrial metals led by copper which was bought in response to the recent technical breakout. The net long rose 18% to 45k lots, still less than half the recent peak from December. Silver enjoyed the tailwind from industrial metals with the net-long rising 19% while gold’s recent break above $1765 only managed to trigger a disappointing 7% rise in the net long to 69k lots. With gold in a downtrend since last August, it highlights the metals continued struggle to attract a fresh momentum bid.

Latest

Gold (XAUUSD) trades rangebound after losing momentum ahead of $1800 while support in the $1760-65 area remains firm. Copper (COPPERUSJUL21) and Iron Ore (SCOc1) meanwhile jumped to the highest since 2011 and 2013 in Asia on expectations supply will tighten further as the global economic recovery gains traction. Copper remains an integral part of the green-energy transition and expectations are pointing to years of mismatch between inelastic supply and growing demand. Above all individual drivers, the focus will be on Wednesday’s FOMC meeting and its potential impact on the dollar and yields which have both been trading softer recently. In gold, lack of enthusiasm in ETF’s and speculators in COMEX futures an indication that large scale short covering from longer term trend funds and renewed momentum buying has not yet emerged. For that to happen gold as a minimum need to break above $1815.

Agriculture

Bullish corn bets saw a small reduction from a ten-year high while wheat and especially soybeans attracted fresh buying. Overall the combined long in the three key crops once again touched a near record high at 558k lots. A level beyond which speculators have not been prepared to increase positions despite a continued price surge. An 8% rally in sugar saw the net-long increase by 25% to 223k lots while coffee’s recent newfound bid helped drive the net length higher by 74%.

Latest

Grain prices extended their recent run of gains ahead of the weekly planting progress from the USDA tonight at 20:00 GMT. The Bloomberg Grains Index is trading at a fresh eight-year high with overnight gains seen in all the major crop futures contracts traded in Chicago which during the past week all reached fresh multi-year highs. These developments being driven by a combination of already low stock levels due to rampant Chinese demand and a record cold snap delaying U.S. planting while hurting some winter wheat areas. To top it all up, Brazil is recording declining crop conditions due to drought.

Forex

Having spent the past three months buying dollars – mostly due to short-covering – speculators finally responded to the renewed Greenback weakness that has been ongoing throughout April. In the week to April 20 the dollar net short against ten IMM currency futures and the Dollar Index was increased by 51% to $7.8 billion, a four-week high.

During the past few weeks falling U.S. real yields have been dragging the dollar back down with the Fed’s insistence that it will be patient in withdrawing stimulus beginning to sink in with traders. While real yields may struggle to fall much further, unless inflation expectations accelerate to the upside, the renewed dollar weakness has also been the result of rate differentials starting to move against the Greenback, as other central banks start to take their feet of the stimulus pedal.

The renewed dollar selling, however was not broad-based with the change mostly due to renewed interest in EUR and CAD. The biggest amount of dollar selling was seen against the euro ($2.1 billion equivalent) and the Canadian dollar ($0.9 billion) with the net impact being somewhat reduced by the Swiss franc position turning net short for the first time since last March while continued selling of the Japanese yen took the net short to a fresh 2-year high at 60k lots or $6.9 billion. In addition the Australian dollar position flipped back to a net-short for the first time since February 23.

What is the Commitments of Traders report?

The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class.

Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and other
Financials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and other
Forex: A broad breakdown between commercial and non-commercial (speculators)

The reasons why we focus primarily on the behavior of the highlighted groups are:

  • They are likely to have tight stops and no underlying exposure that is being hedged
  • This makes them most reactive to changes in fundamental or technical price developments
  • It provides views about major trends but also helps to decipher when a reversal is looming

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

Start trading now

This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank Group through RSS feeds on FX Empire

Virus Surge Puts Oil Back on the Defensive

Once again – and despite ongoing vaccine rollouts – it is raising questions about whether recently upgraded demand growth forecasts are too optimistic.

What is our trading focus?

OILUKJUN21 – Brent Crude Oil (June)
OILUSJUN21 – WTI Crude Oil (June)


Crude oil has once again been forced back on the defensive by a resurgent virus, with most regions apart from Europe experiencing rising case counts. One year ago WTI crude oil hit a historic price at minus $40/b on a combination of a pandemic-led collapse in global demand and rising supply due to a very ill-timed price war between Russia and Saudi Arabia.

Since then OPEC+ has very successfully managed to steer the market back from the brink by making sure supply was kept tight enough to support a reduction in stocks following the massive buildup last year. But just like January when the group was preparing to raise production in anticipation of a vaccine-led recovery in global demand, the market’s expectations for demand growth is once again being challenged by a record rise in coronavirus cases.

Last week crude oil recorded strong gains as the dollar weakened and after OPEC and the International Energy Agency raised their forecast for global demand growth in 2021. However, the coronavirus flare-up in Asia, a very important region in terms of demand, has sent the price of Brent crude oil lower to challenge $65.50/b, the level it broke above last week.

OPEC+ has already on several occasions shown they stand ready to adjust and adapt to a changing demand outlook. With this in mind, the risk of a major correction from current levels is small but so is the upside potential. We see the price of Brent crude remain stuck in the 60’s for the remainder of this quarter or until vaccine rollouts significantly changes the demand dynamics.

Source: Saxo Group
Source: Saxo Group

Adding to the unease since yesterday was an industry report from the American Petroleum Institute showing a rise in US crude stocks while EIA surveys point to a drop of more than 3 million barrels.

Once the EIA report has been published at 14:30 GMT I will, as per usual, publish the result on my Twitter @ole_s_hansen

Source: Saxo Group

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

Start trading now

This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank Group through RSS feeds on FX Empire

Gold and Copper Sold Ahead of Breakouts

Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial.

The below summary highlights futures positions and changes made by hedge funds across commodities, forex, bonds and stock indices up until last Tuesday, April 13. A week where elevated risk appetite, courtesy of a weaker dollar and softer Treasury yields, helped drive stocks and commodities higher, while the VIX dropped to a 14-month low. The reporting week ended before the surprise drop in US yields to a one-month low, a move that helped support multiple technical breakouts in commodities, most noticeable oil, copper and gold.

Please join me this Tuesday for our monthly commodities webinar where we take a closer look the latest developments driving the action across the sector. To sign up for this and future webinars covering the major asset classes, or watch replays of previous held webinars, please visit.

Commodities

Money managers turned net buyers of commodities for the first time in seven weeks. The combined net long across 24 major commodity futures contracts, however, rose by less than 1% to 2.28 million lots with buying of crude oil, natural gas, sugar and corn being somewhat offset by selling of gold, soybeans, platinum and copper.

The reporting week ended just before multiple technical breakouts in oil, copper and gold, continued grain market strength, and renewed demand for soft commodities saw the Bloomberg Commodity index jump the most since December to reach a near three-year high.

Energy

The combined crude oil long in WTI and Brent crude oil rose 31k lots to 661k lots as speculators added to fresh longs while cutting short positions. The reporting week ended before an upbeat monthly oil market report from the International Energy Agency and the weaker dollar helped push prices above their recent trading ranges.

Latest on crude oil from our daily Market Quick Take:
Crude oil futures (OILUKJUN21 & OILUSMAY21) closed above their recent ranges on Friday, but with global virus cases hitting new records, the prospect for a sustained rally at this stage seems limited. Not least considering last week’s rally, apart from strong economic data from the U.S. and China, was based on assumptions for a strong recovery in global fuel demand into the second half of 2021. With the prospect of additional barrels over the coming months from OPEC+, Iran and the U.S. we see the upside potential in Brent crude limited to $70/b until vaccine rollouts significantly changes the demand dynamics.

Metals

Gold’s inability to build on the previous weeks strong rejection below $1680 – now a double bottom – helped trigger a 16% reduction in the net-long to 64.8k lots. Again, just like oil, the reporting week ended before Thursday’s technical breakout above $1765, a development that is likely to have attracted fresh fund buying from momentum and trend following strategies.

Latest on gold from our daily Market Quick Take:
Gold (XAUUSD) ticked higher in Asia overnight after closing above the key resistance-turned-support area at $1760-65/oz on FridayWhile the dollar trades a bit firmer U.S. Treasury yields remain soft with 10-year real yields back below –80 bp for the first time in six weeks. Partly driven by a continued rise in global corona virus cases worldwide supporting safe havens like Treasuries and gold. Continued focus on dollar and yields as well as geopolitical developments between the U.S. and Russia. Important resistance levels, using Fibonacci, at $1785 (double top) and $1818. 

The copper net-long was cut by 20% to 38.2k lots, a nine-month low, and down 58% from last Octobers peak. The reporting week did not include the price jump that followed the multiple technical breakouts of a research note from Goldman Sachs in which they forecast copper rising by more than 60% by 2025.

Agriculture

The corn net-long increased to a fresh 11 year high and at 402k lots the position represents 37% of the total net long across the whole agriculture sectors 13 different futures contracts. While speculators have been adding to their corn position, they have been selling soybeans and wheat. As a result the combined net long has remained almost unchanged for the past six months at 530k lots with corn now accounting for 60% of that long position.

In soft commodities, the Arabica coffee net long more than doubled in response to price supportive reports pointing to a rising supply deficit due to adverse weather in Brazil, the world’s largest producer of quality beans.

Forex

Speculators continued buying (short covering) of dollars almost came to a halt last week. Following three months of near non-stop buying, the dollar short against ten IMM currency futures and the Dollar Index dropped to $5.2 billion, down 86% from the mid-January peak at $37 billion. Only small changes was seen with the most noticeable being Sterling, which despite trading lower saw a 28% increase in the net-long to a one-month high.

Financials

What is the Commitments of Traders report?

The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class.

Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and other
Financials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and other
Forex: A broad breakdown between commercial and non-commercial (speculators)

The reasons why we focus primarily on the behavior of the highlighted groups are:

  • They are likely to have tight stops and no underlying exposure that is being hedged
  • This makes them most reactive to changes in fundamental or technical price developments
  • It provides views about major trends but also helps to decipher when a reversal is looming

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

multiple technical breakouts

This article is provided by multiple technical breakouts, part of Saxo Bank Group through RSS feeds on FX Empire

Broad Risk Reduction from Funds Failed to Spoil Strong Q1 for Commodities

Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial.

The below summary highlights futures positions and changes made by hedge funds across commodities, forex, bonds, and stock indices up until last Tuesday, March 30. A week that saw renewed selling of the tech-heavy Nasdaq, as US ten-year yields climbed to the highest since January 2020 on rising consumer confidence and the prospect for more stimulus. The S&P meanwhile reached a fresh record high while the dollar also saw fresh gains. The Bloomberg Commodity index traded softer with selling in metals, grains and softs more than offsetting strong gains in energy and livestock.

Commodities

Speculators cut bullish commodity bets for a fifth week to the lowest since early December during the week to March 30. With 16 out of 24 futures contracts being net sold the total net-long dropped by 7% to 2.26 million lots or $113.4 billion equivalent. Despite rallying 5% on the week, the biggest reduction hit crude oil with the net long in Brent falling to a four-month low. Outside the energy sector, the agriculture sector saw the biggest reductions led by soybeans, wheat, cocoa, and sugar. Corn was the biggest exception after the net-long climbed to a ten-year high ahead of what turned out to be a surprisingly bullish Prospective Planting report on March 31.

Energy

Speculators made the biggest reduction in six months to their exposure in six oil and fuel contracts. The 60k lots reduction to 835k lots was however mostly driven by a 51.5k lots reduction in the Brent crude oil net-long to a four-month low. Overall the combined net-long in WTI and Brent dropped by 46k lots to an 11-week low at 659k lots.

Latest on crude oil

Crude oil (OILUSMAY21 & OILUKJUN21) experienced a volatile Easter period with the OPEC+ decision to ease production curbs initially sending prices higher, as it sent a signal of optimism, before turning lower on worries about increased supplies from Iran, who currently ship 1 million barrels/day of sanctioned oil to China and another wave of corona virus cases.

Exempted from supply restrictions due to sanctions Iran can produce at will as long it can find buyers willing to take the risk. Iran and U.S. will take part in indirect talks today in Vienna on the Iranian nuclear agreement. For now, Brent crude oil remains locked in a wide $60 to $65 range. Focus today the monthly “Short-term energy outlook” from the EIA and its projections for US production and global demand.

Metals

It was a relatively quiet week in metals with continued price weakness driving a relatively small reductions in gold, silver, and copper. The latter saw its net-length drop to an eight-month low as the price continued to consolidate but without triggering a major correction.

Latest on gold and copper

Spot Gold (XAUUSD) – remains rangebound but following another firm rejection below $1680 last week, the market is pondering whether the double bottom has sowed the foundation for recovery. After losing 10% during the first quarter to come bottom of the performance table, the technical level it needs to break as a minimum remains at $1765. For now, however, most of the recovery has been a result of a weaker dollar and yields that have stopped rising. Stronger than expected inflation remains gold and with that also silver’s best chance of recovery.

Copper surged higher in thin holiday trading on Monday in response to Chiles’s announcement on Friday it would shut it borders throughout April in order to battle a deadly surge in coronavirus cases. Together with its next-door neighbor Peru, it supplies around 40% of global output and while Chile said production is safe (hence the softer tone today) the risk of a supply disruption from mine closures combined with the prospect for strong demand is likely to keep prices supported. Having cut bullish bets by 50% during the past six weeks, a break above $4.2/lb may be the trigger that forces funds back on the buying side.

Agriculture

Grains which all traded lower on profit-taking ahead of the March 31 Prospective Planting report from the US Department of Agriculture resulted in mixed reactions from speculators. While soybeans and wheat both saw long liquidation, the corn long reached a ten-year high at 396k lots. Overall the net long across six soy and grains contracts saw the biggest one-week reduction since last May and at 684k lots, corn now accounts for a whopping 58% of that net length.

Despite the mentioned five weeks of selling which reduced bullish commodity bets by 18% from the February record peak, the first quarter nevertheless showed strong returns across the commodity sector with a continuation from last year being led by the prospects of a vaccine-led growth sprint, the green transformation theme attracting increased demand for key metals combined with continued generosity from central banks and governments.

The Bloomberg Commodity Index rose by 7% during the quarter, a result that would have been even higher if the stronger dollar and rising bond yields hadn’t sent gold and silver lower to end the quarter as the worst-performing commodities.

Forex

Speculators reduced their short dollar position further in the week to March 30 where the broad Bloomberg Dollar index rose 0.7% and the euro slumped to a near five-month low near €1.17. Against ten IMM currency futures and the Dollar Index the combined short was cut by one-quarter to $7.4 billion, a nine-month low.

Six weeks of aggressive yen selling lifted the JPY short to a near two-year high at 59.5k lots or $6.7 billion equivalent, while accelerated selling of euros saw the net long slump to a ten-month low at 73.7k lots ($10.8 billion). Partly offsetting these were buying of Sterling, Aussie and Mexican peso.

What is the Commitments of Traders report?

The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class.

Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and other
Financials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and other
Forex: A broad breakdown between commercial and non-commercial (speculators)

The reasons why we focus primarily on the behavior of the highlighted groups are:

  • They are likely to have tight stops and no underlying exposure that is being hedged
  • This makes them most reactive to changes in fundamental or technical price developments
  • It provides views about major trends but also helps to decipher when a reversal is looming

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

Start trading now

This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank Group through RSS feeds on FX Empire

Oil Stabilizing on Blocked Suez Canal and OPEC+ Anticipation

What is our trading focus?

OILUKMAY21 – Brent Crude Oil (May)
OILUSMAY21 – WTI Crude Oil (May)


Crude oil’s two-week tumble extended further yesterday with Brent crude oil almost touching $60/b in response to fund selling following a renewed deterioration in the short-term outlook for demand. Having corrected 15% from the March 8 peak above $70/b, the market will increasingly be focusing on next week’s OPEC+ meeting and what the group can and will do in order to stem the slide.

The combination of fund’s exiting longs at the front of the curve, where liquidity is abundant, together with signs of another Covid-related delay to the expected surge in fuel demand, has seen the front month spreads on both WTI and Brent crude oil return to a contango. A structure normally signaling an oversupplied market with spot prices trading the cheapest along the curve. The longer dated spreads have also seen a sharp deterioration with the three-month spread slumping to $0.5/b from above $2/b less than a month ago.

Just as the oil market was staring at a potential deeper loss it received a Suez blockage bounce overnight. This after a 400-meter container ship named “Ever Given” ran aground in the canal to block traffic in both directions, thereby disrupting a major passageway for the global commodities trade. The Suez Canal is one of the world’s busiest waterways and a delay running into days, not hours, will cause a major congestion and delay in the two-way flow of both oil and fuel products.

However, while the blockage is a problem for refined products, crude oil can bypass the canal via two large nearby regional pipelines: Sumed (South-to-north) and Ashkelon-Eilat, which is bi-directional. In total these two pipelines has, according to Bloomberg, a capacity larger than the normal crude flows across the canal.

Returning to the recent weakness and when it may stop, we need to turn our attention to investment flows. Since the early November vaccine announcements, which kicked off a strong rally driven by momentum, tightening fundamentals and reflation focus, money managers such as hedge funds and CTA’s, bought 370,000 lots (370 million barrels) of WTI and Brent thereby almost doubling their net-long position.

However, during the past five weeks up until March 16, when crude oil continued to rally, they stopped buying. Rising risk adversity driven by the spike in US bond yields and with that a stronger dollar and growing signs that oil was being held up by OPEC+ and not from rising demand was the canary in the mine that only needed a spark to turn ugly. That spark was delivered last week by a cautious outlook from the IEA and the FOMC triggering renewed bond market volatility.

The next COT update covering speculators crude oil positions will include the 7% sell off last Thursday and yesterday’s 6% correction. The level of long liquidation will give us an idea about the risk of further weakness, should OPEC+ fail to deliver a supporting message next week. The report will as per usual be released on Friday after the close and I will tweet the findings on Sunday.

Due to unpredictable behavior of the virus and a slow vaccine rollout, the expected strong recovery in global fuel demand looks likely to suffer further delays. With this in mind, the expected 2021 pickup in global crude oil demand by around 5.5 million barrels/day continue to rely increasingly on a strong pickup during the second half. With this in mind next week’s OPEC+ meeting should give us a good reading on how the group sees demand developing into the summer months.

Considering the risk of OPEC+ pulling another rabbit out of the hat to support the oil market, we see the long overdue and much needed correction being close to having exhausted itself. From a technical perspective we see the downside on Brent crude oil limited to $58/b while renewed upside focus will not kick in before it climbs back above $65/b.

Later today at 14:30 GMT, the US Energy Information Administration will publish its “Weekly Petroleum Status Report” and surveys as well as last nights industry report from the American Petroleum Institute (inserted below) point to a fifth consecutive weekly rise in crude oil stocks. Apart from that the market will as per usual also take a closer look at the post-Texas freeze recovery in refinery demand, as well as the level of activity on the roads as seen through the implied demand for gasoline and diesel. As per usual I will publish results and charts on my Twitter handle @ole_s_hansen.

Source: Saxo Group

Source: Saxo Group

For a look at all of today’s economic events, check out our economic calendar.

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

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This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank Group through RSS feeds on FX Empire

Dollar Short Cut in Half; Gold Buyers Return

Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial.

The below summary highlights futures positions and changes made by hedge funds across commodities, forex, bonds and stock indices up until last Tuesday, March 16. A reporting week that ended the day before the FOMC meeting caused renewed across-market uncertainty after it failed to reassure traders and investors on fears that yields and inflation will continue to rise. However, during the reporting week markets were well behaved with the S&P 500 rising 2.3% and the VIX falling by 4%. The dollar traded softer, commodities were mixed while yields on US 10-year Notes climbed 9 basis points to 1.62%.

Commodities

Speculators cut bullish commodity bets for a third week, but overall it was a mixed bag with no clear thread seen across and within the three sectors. Half of the 24 commodity futures tracked in this were sold, led by natural gas, wheat and copper while buying among the other half was concentrated in corn, gold and the three fuel contracts. Overall the net long was cut by 2% to 2.5 million lots to the lowest exposure since the week to December 22.

Energy

Speculators increased bullish WTI bets by 2.3k lots to 393k lots, a fresh 32-month high while the Brent long (-5.8k lots to 334k) was cut for a second week. Overall the combined net long held steady for a fifth week at 727k lots, just days before plunging the most since September on stalling vaccine rollouts, rising bond yields triggering reduced risk appetite and IEA saying speculation about a oil super-cycle is premature. However, concerns about OPEC+ action to stem the slide and both WTI and Brent successfully bouncing from their 50-day moving averages helped reduce the risk of further technical hedge fund selling. Continued buying of refined fuel products lifted the net long in gasoline, distillate and gas oil to a 14-month high at 194k lots.

Natural gas’ continued warmer weather slump, down 20% during the past month, triggered another week of aggressive long liquidation in four Henry Hub deliverable futures and swap contracts. In just three weeks funds have sold 144k lots, bringing the net down to an eight-month low at 212k lots.

Metals

Buyers returned to gold for the first time since January after it managed to find support within the important $1670-85 band of support. The 30% jump in the net long to 54.7k lots was driven by a combination of new longs (5.9k) and 7k of short covering. These developments unfolded before the post-FOMC recovery when the market stepped up its focus and hedging activity against the risk of rising inflation. Elsewhere the silver long was reduced by 6%, platinum buying lifted the net long by 11% while HG copper selling extended into a fourth week resulting in the net long being cut to just 45k lots, an eight month low.

Agriculture

Grains and softs, with the exception of corn and cotton saw mild net selling. Overall the total net long in grains was only reduced by 0.4% to 743k lots, and the sector maintain a near record long exposure ahead of the March 31 US Prospective Planting report which may set the tone into the planting and growing months. Wheat, both the soft and hard red winter variety saw a combined 19k lots reduction 56k lots as it continue to be least wanted of the three major crops.

Forex

Dollar short covering accelerated last week with the net short against ten IMM currency futures and the Dollar Index being almost cut in half to $12.3 billion, the least bearish dollar position since last June.

Speculators sold a whopping 46k lots or $5.3 billion equivalent of yen futures, thereby flipping the position to a net short for the first time in a year. This was the largest weekly selling of yen since 2011 and interestingly it occurred during a week where the yen traded rangebound and only finished down 0.5%. The euro long was cut by 12k lots ($1.8 bn) to 90k lots, and since the August 2020 record peak it has now been reduced by 58%. Selling was seen in all but nine of the ten currency pairs with other major changes being a 31k lots ($0.7 bn) reduction in the MXN long and 11k lots ($0.8 bn) in NZD.

What is the Commitments of Traders report?

The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class.

Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and other
Financials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and other
Forex: A broad breakdown between commercial and non-commercial (speculators)

The reasons why we focus primarily on the behavior of the highlighted groups are:

  • They are likely to have tight stops and no underlying exposure that is being hedged
  • This makes them most reactive to changes in fundamental or technical price developments
  • It provides views about major trends but also helps to decipher when a reversal is looming
For a look at all of today’s economic events, check out our economic calendar.

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

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This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank Group through RSS feeds on FX Empire

Yield Surge Punishes Oil While Gold Sends Out Inflation Feelers

The month-long commodity rally has stalled and while the strong fundamental outlook for the sector hasn’t suddenly turned on a dime, it is the ongoing surge in US Treasury yields that have forced a reduction in the general level of risk appetite across markets. Led by a major, and some would argue long overdue, correction in crude oil, the Bloomberg Commodity index traded down by 3% to record its biggest weekly loss since October.

While individual developments within each commodity helped set the tone, the overall direction was for a third consecutive week being dictated by developments in the US bond markets. The steep sell-off on Thursday across commodities, stocks and bonds occurred after the dovish FOMC meeting failed to reassure the market on fears that yields and inflation will continue to rise. The Fed will basically allow both the economy and inflation to run as hot as they want to. In particular, the inflation comment about allowing it to run above 2% for a sustained period spooked the market.

The individual commodities most exposed to the latest round of risk adversity are those carrying the biggest speculative length. Overall, the commodity sector has enjoyed a strong revival in recent month for solid reasons that we have talked about at length in previous updates. Money managers or speculators have during the past nine months, as a result of strong price momentum, been accumulating a record commodity exposure, and with a few exceptions, one being gold, the net long across many have risen to the extent that a change in the short-term fundamental and/or technical outlook could trigger a sharp correction.

Crude oil

Crude oil which in recent weeks increasingly had been showing signs of having reached its short-term price potential, dropped the most since October after being given a double blow on Wednesday from the International Energy Agency and the FOMC. In their latest monthly Oil Market Report, the IEA raised questions about some of the reasons that have supported Brent crude oil’s recent surge to $70/b. Specifically, the risk of a new super-cycle and a looming shortfall were given the cold shoulder.

Not only do they see ample oil inventories despite a steady decline from the massive overhang that piled up during 2Q20. They also highlighted the hefty amount of spare production capacity, currently in the region of 8 million barrels/day that is being held back by OPEC+ members. With the recovery in fuel demand still fragile, especially as the vaccine rollout hits problems across several regions, most noticeably Europe, global demand growth forecasts around 5.5 million barrels/day in 2021 could end up being too optimistic.

With these developments in mind, it is clear that the 80% rally since early November, when the first vaccine news broke, has primarily been driven by OPEC+ withholding production. Thereby leaving the price exposed to any negative news related to demand. The floodgates opened once Brent broke below $66.50, and from there it was an almost a straight line drop down to $61.5. While these new lower levels better reflect the current oil market situation, the risk remains that speculators may not yet have fully adjusted their positions.

On the other hand, having fought so hard to support prices during the past year, OPEC+ members are unlikely to remain passive spectators should the price drop further. If it did we shall expect verbal intervention as the first line of defense, and if not enough, extend current cuts for longer or even cut more barrels. OPEC+ have plenty tools available and led by Saudi Arabia they have shown willingness to use them.

From a technical perspective Brent has broken the uptrend from November but so far found support at the 50-day SMA at $61.50, and a weekly close above would support risk sentiment and potentially signal a bounce over the coming days.

Gold

Gold received an initial boost after the FOMC confirmed its dovish stance by maintaining an outlook for unchanged rates until 2024. While effectively flashing a very accommodative green light for risky assets and dollar bears, the market instead took fright from the ongoing question of whether the Fed is making a “policy mistake” in seeing the rise in longer US yields as entirely benign.

Furthermore, the market concluded that the Fed will accept both the economy and inflation to run wild, with the latter being allowed to rise and run above 2% for a prolonged period of time. While initially falling in sympathy with other asset classes, gold increasingly began attracting a bid as it tried to reestablish the reflation credentials that has been thoroughly missing for the past few months. Signs that it is having some success can be seen in the relation between gold and US 10-year real yields. On March 8, when the real yield traded at -0.6%, gold was challenging support at $1680, some 60 dollars below its current level.

While other commodities, due to elevated positioning, such as oil and grains have been left exposed to risk reduction, gold was already unloved by investors. The lack of momentum in recent months had resulted in hedge funds reducing their net long in COMEX gold futures to a near two-year low at 42k lots (4.2 million ounces), an 85% reduction from the recent peak in February 2020.

Total holdings in bullion-backed exchange-traded funds as reported by Bloomberg have seen continued reductions during the past 30 days, falling to a nine-month low at 3,144 tons, a 9% reduction from last year’s peak. One region, however, which has gone against the trend is in China where ETF holdings in February, according the World Gold Council, increased by 8 tons to a record 68.6 tons, after investors faced turmoil’s in the Chinese stock market.

For now, gold remains stuck in no man’s land and despite having seen a slight improvement in the technical outlook, that’s where it remains. For that to change and in order to attract renewed demand, especially from leveraged accounts, it needs to retake $1765/oz and until it does we maintain a short-term neutral outlook, while maintaining a medium-term bullish belief in gold’s ability to recover back towards $2000/oz.

For a look at all of today’s economic events, check out our economic calendar.

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

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This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank Group through RSS feeds on FX Empire

Yield Rise Tames Post-FOMC Bid in Gold

Gold received an initial boost after the FOMC doubled, or even tripled down on its dovish stance by maintaining an outlook for unchanged rates until 2024. The Fed effectively flashed a very accommodative green light for risky assets and dollar bears, versus the follow-on nervousness due to the ongoing question of whether the Fed is making a “policy mistake” in seeing the rise in longer US yields as entirely benign.

The quick conclusion on the meeting is that the Fed will accept both the economy and inflation to run wild, with the latter being allowed to rise and run above 2% for a prolonged period of time. The bond market took Powell’s comments as an invitation to continue to force yields higher with 30-year yields briefly touching 2.5% earlier today.

As mentioned, the initial support to gold and precious metals in general was primarily provided by a weaker dollar, especially against the euro where €1.20 has become a key upside level to watch as a gauge for where the dollar will be heading next. A break would support for gold, the most interest and dollar sensitive of all commodities. In the short-term however, the outlook looks neutral with the risk of a continued rise in US yields offsetting the positive impact of a weaker dollar and rising inflation concerns.

For now, gold remains stuck in no man’s land and despite having seen an improvement in the technical outlook it remains unloved by investors. Total holdings in bullion-back Exchange-traded funds has slumped to a nine-month low at 3,148 tons, a 9% reduction from last years peak. Hedge funds meanwhile have cut their net long in COMEX gold futures to a near two year low at 42k lots (4.2 million ounces), an 85% reduction from the recent peak from February 2020.

US 10-year real yields which remains a key driver for gold has risen back above -0.60% a level which on its last visit in early March saw gold trade 50 dollars lower to challenge key support below $1680/oz. The fact that it is holding well above that level could potentially be the first sign that the gold focus has started to diversify.

For now, however the chart and price action is telling us to remain neutral with a break above $1765 needed in order to attract renewed technical and momentum buying.

For a look at all of today’s economic events, check out our economic calendar.

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

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This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank Group through RSS feeds on FX Empire

Oil Lower as Yields Rise and IEA Talks Down Super-Cycle Risks

What is our trading focus?

OILUKMAY21 – Brent Crude Oil (May)
OILUSAPR21 – WTI Crude Oil (April)


Crude oil continues to show signs of having reached its short-term potential with the return to the lower end of its current range being driven by a combination of rising US bond yields ahead of today’s FOMC meeting and after the International Energy Agency toned down the potential for a super-cycle in crude oil.

In their latest monthly Oil Market Report, the IEA raised questions about some of the reasons that has supported Brent crude oil’s recent surge to $70/b. Especially the risk of a new super-cycle and a looming shortfall was given a cold shoulder. Not only do they see ample oil inventories despite a steady decline from the massive overhang that piled up during 2Q20. The also highlighted the hefty amount of spare production capacity, currently in the region of 8 million barrels/day that is being held back by OPEC+ members.

With the recovery in fuel demand still fragile, global demand look set to grow by 5.5 million barrels/day in 2021 according to averaged estimates from IEA, EIA and OPEC, and it will not return to pre pandemic demand levels before 2023. With these developments in mind it is clear that the 80% rally since early November, when the first vaccine news broke, has primarily been driven by OPEC+ withholding production.

In a couple of recent interviews I said that OPEC+ following their March rollover of production will have to increase production in April. Failure to do so could risk send the price of oil lower as the market would see that as a sign of continued demand weakness. Keeping production tight in order to send the price higher into a still weak demand outlook may prove to be counterproductive at this stage in the recovery.

Adding to the markets current unease is the relentless rise in US bond yields which has strengthened the dollar and inadvertently helped reduce the risk appetite across markets, not least commodities where speculators up until recently held a record long position across 24 major commodity futures.

Brent crude oil trades lower for a fifth day, its longest run of losses in six months. While resistance has been established above $70/b, support has yet to be established. Focus on the 21-day moving average, currently at $66.40 followed by $65, the trendline from the November low.

Source: Saxo Group

The weekly Commitment of Traders report from the U.S. CFTC breaks down the open interest in commodity futures between producers, swap dealers and money managers or speculators. In the latest update covering the week to March 9 we found that during the past four weeks the 12% rally in crude oil had triggered no additional increase in the combined speculative net long in Brent and WTI crude oil. While rising US bond yields and the stronger dollar, as mentioned, has lowered the general level of investment appetite, these developments also support our view that crude oil has reached a level beyond which can be hard to justify given current fundamentals.

Before today’s main event, the FOMC announcement at 1800 GMT, the US EIA will release its weekly crude and fuel stock report at 1430 GMT, also an hour earlier than normal due to US summertime. Given the result from last nights industry report from the American Petroleum Institute and surveys ahead of today’s release, the market is looking for a return to normal. This following the aftermath of the Texas freeze debacle which helped trigger two weeks of crazy data with refinery outages driven a surge in oil stocks and a record slump in gasoline and distillate stocks.

I will publish the results on my Twitter feed @ole_s_hansen, but with the focus squarely on today’s main event, the FOMC meeting, the market impact is likely to be limited.

Earlier in the week I was invited onto the weekly Half-time Talk show organized by Gulf Intelligence in the UAE and published today Wednesday. During our 20 minutes conversation we talked about the super-cycle, what may drive it and more specifically took a closer look at current oil market fundamentals.

For a look at all of today’s economic events, check out our economic calendar.

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

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This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank Group through RSS feeds on FX Empire

Rising Yields Cut Dollar Shorts and Commodity Longs

Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial.

The below summary highlights futures positions and changes made by hedge funds across commodities, forex, bonds, and stock indices up until last Tuesday, March 9. A week that saw 10-year US bond yields climb 13 bp to 1.53% and the dollar rally to a four-month high. Gold and other interest rate and dollar sensitive commodities suffered in response to the yield rise primarily being driven by real yields rising 11 bp with breakeven yields only accounting for the remaining 2 bp.

In stocks, the rotation to value from momentum continued with the S&P 500 trading flat while the Nasdaq dropped by 2%. The Bloomberg Commodity Index traded flat with losses in metals being off-set by energy.

Commodities

Speculators cut bullish commodity bets for a second week with rising yields and a stronger dollar triggering some risk adversity. The combined net long across 24 major futures contracts was reduced by 4% to 2.6 million lots, representing a nominal value of $129.2 billion. Once again the metal sector led by gold and copper saw the biggest reductions followed by several agriculture commodities led by sugar, cotton, and soybean oil. Investor demand for crude oil continued to fade despite another strong rally while natural gas longs slumped by 14% on warm weather developments.

Energy

Crude oil’s +7% rally in the week to March 9 that was partly driven by a temporary risk spike following the attempted attack on Saudi oil installations, only triggered a small 2.8k lots net increase in the combined crude oil long in WTI (+7.6k) and Brent (-4.8k). During the past four weeks a 12% rally in crude oil has triggered no additional increase in the combined net long which currently stands at a 2-1/2-year high at 731k lots. While rising US bond yields and the stronger dollar has lowered investment appetite, these developments also support our view that crude oil has reached a level beyond which can be hard to justify given current fundamentals.

A two-week record draw in US fuel stocks, following the Texas freeze disruption, helped attract net buying in both gasoline and distillates. A natural gas price slump on warmer weather driving less demand triggered a 14% reduction in the net long to 284k lots.

Metals

Speculators cut bullish gold bets for a sixth straight week, the longest slump since 2017. Rising yields, a stronger dollar and economic stimulus eroding safe-haven demand has driven the net-long to a near two-year low at 41.9k lots and 85% below the latest 285k peak from February 2020. Gold’s close inverse correlation with US ten-year real yields showed signs of breaking on Friday afternoon when gold managed a relative strong close despite rising yields. For now, however, gold remains caught in a downtrend with key support being an important area between $1670 and $1690 while buyers are in no rush to enter longs before it manages to regain $1765/oz.

Copper’s temporary slump below key support at $4.04/lb helped trigger a 14.3k lots reduction in the net long to a seven month low at 51.2k lots. In just three weeks funds have cut bullish bets by 41% with rising yields and dollar together with rising stock levels in China forcing long liquidation. An interesting development for a metal that enjoys strong fundamental support but also one that highlight most money managers have a price and momentum focus.

Agriculture

The grains and soy sector saw a small 6k lots reduction during a week that ended with a monthly supply and demand report from where a US government. A report that turned out to be somewhat disappointing to the bulls after it failed to trim forecasts for domestic inventories while upgrading estimates for world stocks. Money managers, however, remain very bullish the sector and since last October have maintained a record long in wheat, corn and soybeans around 550k lots, the bulk of which stems from a 357k lots long in corn.

From Reuters: Expanded position limits for CBOT grains point to volatility
Expanded speculative position limits for agricultural futures scheduled to go into effect on Monday could eventually add to market volatility as commodity funds are allowed to build larger bets on market direction, analysts said. Futures exchange operator CME Group, parent of the Chicago Board of Trade, is expanding position limits in wheat, corn, soybeans and other commodities following a final rule published in January by the U.S. futures regulator, the Commodity Futures Trading Commission.

Forex

Continued dollar strength helped accelerate short covering during the week to March. The combined dollar short against ten IMM currency futures and the Dollar Index dropped to a four month low following an 18% reduction to $24 billion. The primary force behind the reduction was a continued pairing of euro longs after speculators sold 24k lots to bring the net long down to an eight-month low at 102k lots. They  also sold 12.7k lots of JPY to a one-year low at 6.5k lots, 4.3k lots of CAD and 2.2k lots of GBP with a small offset coming from the buying CHF and AUD.

Positions in U.S. bond market futures split between the three main groups of participants

What is the Commitments of Traders report?

The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class.

Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and other
Financials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and other
Forex: A broad breakdown between commercial and non-commercial (speculators)

The reasons why we focus primarily on the behavior of the highlighted groups are:

  • They are likely to have tight stops and no underlying exposure that is being hedged
  • This makes them most reactive to changes in fundamental or technical price developments
  • It provides views about major trends but also helps to decipher when a reversal is looming
For a look at all of today’s economic events, check out our economic calendar.

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

Start trading now

This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank Group through RSS feeds on FX Empire

Dollar Short and Commodity Longs Cut on U.S. Yield Spike

Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds, and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial.

The below summary highlights futures positions and changes made by hedge funds across commodities, forex, bonds, and stock indices up until last Tuesday, March 2. The period included the February 25 wash-out in bonds that saw US ten-year yields jump to 1.61% in response to muted demand at a seven-year auction.

The move saw equities tumble as higher borrowing costs made it harder to justify soaring valuations while the dollar bulldozed most of its peers rising to near a three-month high. Commodities traded lower and despite current strong fundamentals, the market worried rising bond yields could trigger a reduction in the near-record speculative long-held by funds.

Commodities

Speculators made their biggest one-week reduction in bullish commodity bets since mid-November. Despite reflation focus and strengthening fundamentals the bond market rout and a stronger dollar led to fresh concerns that deleveraging could spread to commodities. The total net long across 26 major commodity futures was cut by 4% to 2.7 million lots, representing a nominal value of $132.3 billion.

All but a handful of contracts were sold with the biggest reduction hitting gold, soybeans, and corn while the most noticeable buying interest benefitted cocoa and wheat.

Energy

Crude oil traded lower during the week to March 2 with profit-taking emerging as the dollar strengthened and expectations rose that OPEC+ at their meeting on March 4 meeting would increase production by up to 1.5 million barrels from April. The weakness, however, only triggered a small amount of risk reduction from funds with the combined net-long in WTI (-3.7k) and Brent (-3.8k) being reduced to 728k lots. With the net-long staying close to the highest level since October 2018, the 7.6k reduction was however the biggest on a weekly basis since early November, just before vaccine news helped kick start the 80% rally seen since then.

Metals

In gold, the continued loss of momentum in response to rising real yields, especially following the slump below $1760/oz, helped drive a continued fund exodus. The net long slumped by one-third to a 22-month low at 57.9k lots on a combination of long liquidation and fresh short selling, a development that saw the long-short ratio drop below 2 for the first time since May 2019.

In silver and platinum, selling has been more subdued given the tailwind from industrial metals and with that some relative strength against gold. The net-long in both was reduced by around 20% to the seven and a one-month low respectively.

Profit-taking continued in HG copper and despite rising 1% on the week, the net long was cut for a second week to 65.5k lots, the lowest since August. Just ahead of Thursday when the break below support at $4.04/lb triggered a rapid slump to $3.85/lb before recovering.

Agriculture

The grains sector with the exception of CBOT wheat was sold on a combination of general risk reduction and the stronger dollar. Biggest reductions in soybeans (-16.8k) followed by corn (-12.6k). Soft commodities were mixed following a couple of weeks of net buying with the most noticeable change being an 83% increase in the cocoa long and a 9% reduction in cotton after the price found resistance ahead of the 2018 high at 95.60 cents per pound.

Despite bulldozing most of its peers in response to rising real yields, the dollar short against ten IMM currency futures and the Dollar Index only saw a five percent reduction to $29.6 billion, the lowest since mid-December. As in previous weeks, the main contributors to dollar short covering came from EUR and JPY where speculators cut longs by 3 billion dollar equivalent. The euro long was reduced to an eight-month low as it struggled to hold above support at €1.1950, a level that it eventually broke on Friday.

The explanation for not seeing a bigger reduction in the dollar short can be found in the continued commodity rally, which lifted long positions in CAD by 68% while the AUD reverted to a net-long for the first time in five weeks. Speculators extended their buying of Sterling into the fifth week and the 16% increase to 36k lots was the biggest bet in three-years. This despite emerging signs that the strong run of gains during February had started to run out of steam.

Financials

Traders in U.S. interest rate futures made sharp changes in positioning across the curve in the week to March 2. The period included the February 25 wash-out that was sparked by a disastrous 7-year note auction. Please note the data below reflects positions held by leveraged funds, who often hold some of their futures exposure as spreads against other interest rate products, and due to this we often find them buying into bond weakness while selling into strength. The bulk of the opposite position tends to be held by asset managers/institutional and dealer/intermediaries.

What is the Commitments of Traders report?

The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class.

Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and other
Financials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and other
Forex: A broad breakdown between commercial and non-commercial (speculators)

The reasons why we focus primarily on the behavior of the highlighted groups are:

  • They are likely to have tight stops and no underlying exposure that is being hedged
  • This makes them most reactive to changes in fundamental or technical price developments
  • It provides views about major trends but also helps to decipher when a reversal is looming

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

Start trading now

This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank