Energy: Crude oil’s late July rally ran out steam after the market attention increasingly turned from OPEC+ to Asia, and especially China, where the delta coronavirus variant continued to spread thereby putting a cloud over the short-term demand outlook. As a result, the net long in WTI and Brent was cut by a combined 18.4k lots to 614k lots, thereby reversing one-third of what was added in the previous week. The bulk of the change led by long liquidation with no signs of increased short-selling activity.
The natural gas long in four Henry Hub deliverable swap and futures contracts was, despite surging prices, cut by 4% to 312k lots. This the fourth consecutive week of net selling has occurred while the price has continued to rally, and it closed the week at $4.14, the highest since December 2018 in response to hot weather and robust export of LNG raising concerns about insufficient stockpiles for the coming winter.
Following the worst week for crude oil in ten months, the market will be watching closely the monthly oil market reports from EIA on Tuesday followed by the IEA and OPEC on Thursday for any signs of changes in the demand outlook. The rapid spreading of the delta coronavirus variant in Asia and parts of the US has seen the market focus switch back to demand worries from OPEC’s ability to keep prices supported by keeping supplies sufficiently tight.
Metals: The gold long, just like the price, held steady with a small net addition of just 851 lots disguising a pickup in short selling interest with traders increasingly seeing the risk of a downside move in response to gold’s week-long failure to respond to a sharp fall in US Treasury yields. A worry that was confirmed on Friday, when the a very strong US jobs report helped push an already weakened price over the edge to record its biggest fall in seven weeks.
Silver meanwhile saw the net long receiving a 22% boost but with the sole driver being short covering. Copper was net sold with virus worries off-setting the risk of a strike related supply disruption in Chile, the world’s number one producer.
With the market focus on jobs over for now, the short-term direction of precious metals could be dictated by U.S. inflation – the other part of the Fed’s mandate - with July CPI due on Wednesday.
Today’s flash crash: Gold (XAUUSD) and silver (XAGUSD) already under pressure following Friday’s stronger than expected US jobs report, suffered a flash crash during the early parts of the Asian session. Following the weak close on Friday both metals had been left vulnerable into the opening, and with both Singapore and Japan on holiday the Asian opening offered even less liquidity than normal. Within minutes gold dropped more than 4% while silver slumped 7%, before pairing losses ahead of the European opening. Traders have been rattled by golds strange behavior in recent weeks when falling yields failed to boost the price, while last week’s small turnaround in yields triggered an immediate and strong negative response. This sort of capitulation can often coincide with a significant low in the market but for that to happen economic data is required to turn more gold friendly.