Energy: Another week of extreme volatility in crude oil, this time a 22% move to the downside, drove a second weekly reduction in the combine WTI and Brent net long by 23k lots to a four-month low at 411k lots and just above the 400k lots reached in early December when crude oil briefly traded below $70/b in response to the omicron virus variant. Brent, the global benchmark saw its net long drop to a 16-month low at 153k lots.
As mentioned, when volatility spikes and traders are faced with rising margin calls on their open futures positions, the first reaction is to make an across the board reduction. This is currently very noticeable in the five oil and fuel contracts which have seen open interest fall from 7.1 million lots on March 12 to a current seven-year low at 4.7 million lots.
Monday am market comment: Crude oil (OILUKMAY22 & OILUSAPR22) rose to a one-week high in Asia as the war in Ukraine keeps global supplies very tight with traders, mostly through self-sanctioning, avoiding Russian crude, currently being offered close to 30-dollar below Brent with a limited number of buyers queuing up to secure cheap cargoes. In addition, Middle East tensions also rose after Houthi rebels attacked sites across Saudia Arabia over the weekend. With supply tightening, the market will be looking for signs of demand destruction, mostly through the cost of diesel and gasoline as well as the impact of temporary covid related lockdowns in China.
Metals: Gold’s recent surge towards the 2020 record high and subsequent abrupt rejection helped drive a 5.5% correction and with that a relative small 16% reduction in the net long to 147.5k lots, the first weekly reduction in six weeks. Small in the sense that gold almost gave back all of its post invasion gains. With most of the reduction being driven by long liquidation and a very limited amount of fresh shorts, this highlights a change that was primarily driven by leveraged traders forced to reduce bullish bets. Other big changes were a 41% reduction in the platinum long and a 31% reduction in the copper long to 29k lots and just below the average sized positions leveraged funds have held during the past year.
Monday am market comment: Gold (XAUUSD) & silver (XAGUSD) trade steady as investors continue to weigh monetary policy tightening in the US against the inflationary impact of the Russia-Ukraine war. Long liquidation from leveraged funds who had loaded up on gold futures in recent weeks may have run its course, while longer-term focused investors have been continuing buyers of gold ETFs since the war began. During this time, total holdings have jumped by 134 tons to a one-year high at 3,246 tons, with more than half of the increase seen during golds recent 175-dollar correction. Gold as being bought as a hedge against elevated inflation and a central bank policy mistake with slowing growth potentially preventing the FOMC from carrying out its planned number of rate hikes before being forced to revert to a period of renewed stimulus. Key support at $1890/oz with a break above $1957 needed to signal fresh upside potential
Agriculture: Coffee long liquidation accelerated as it extended to a fourth week with the net long falling 26% to an eight month low at 29k lots. In sugar, a 4.8k lots small reductions followed the massive 79.5k lots jump the previous week. Grains were the only sector seeing net buying and after four weeks of continued buying the total long across the six contracts tracked in this has reached a ten-year high at 803k lots. The bulk being held in the soybean complex (363k) and corn (373k) with the recently surge in wheat to record highs only a attracting a 67k lots position in the Kansas and Chicago wheat contracts.