Energy: Money managers increased their crude oil exposure in WTI and Brent for a third week by a total of 44k lots to a six-week high at 595k lots. With the bulk of the increase being driven by fresh longs, and only a limited amount of short covering, the risk of a short-term price pull back has emerged. Losses have accelerated this Monday as crude oil trades lower in response to China demand worries, a continued recovery in US production and a stronger dollar ahead of this week's FOMC meeting sapping investor demand. Last week the rally was halted at $76, the July 29 high, and more importantly it has raised the question whether current and improving fundamentals are strong enough to warrant a push abovetrendline resistance from the 2008 record peak, currently at $77. We don’t believe they are, therefore, leaving the market at risk of a short-term pull back, initially towards the 21-day moving average $72.75.
Natural gas which jumped by 15% during the week to reach a 7-year high did not see any fresh buying with surging volatility instead forcing traders to cut exposure. The reduction in both long and short positions left the net across four Henry Hub deliverable swap and futures contracts down 1,213 lots to 263k lots.
Metals: Biggest changes hit the Platinum Group Metals, which in response to an ongoing semiconductor chip shortage in the automobile industry has witnessed a change in the short-term demand outlook. Adding to this, the often poor liquidity in these minor metals, and the result was a 16% slump in palladium and 6% drop in platinum during the reporting week. Speculators acted accordingly be flipping their palladium position to a net short for only the second time since at least 2009 while an existing platinum short increase by 130% to 16k lots, now the biggest in terms of lots and notional value across the 24 major markets tracked in this report.
Ahead of Thursday's sell of in gold and silver speculators had responded to the recovery from the August slump by adding a small amount of gold length while in silver they reversed course and cut longs by 21%. The HG copper long meanwhile reached a six-week high.
Latest: Gold dropped to a five-week low overnight with treasury yields rising on taper jitters ahead of Wednesday’s FOMC meeting, and as the dollar received a haven bid following another day of stock market losses led by Hong Kong and its troubled property sector. The short-term question is whether investors, despite taper angst, will return to bonds as they seek a safe harbor while the stock market correction potentially gathers pace. Hardest hit has been silver and platinum, both overnight touching their lowest levels since November, with the economic growth outlook challenged on multiple fronts. Not least in China where iron ore, a key input to its steel industry has more than halved in just a few months, and overnight in Singapore it slumped an additional 9% to $93 as China steps up restrictions on industrial activity in some provinces.