Energy: The combined net long in WTI and Brent crude oil was reduced by 41.2k lots to 630k lots as both contracts continue to lose momentum. The lowest bet on rising prices since early January occurring at a time where crude oil has become rangebound with the prospect for stronger economic growth and demand helping to offset the impact of a resurgent coronavirus just as OPEC+ prepares to add supply over the coming months. Adding to the current lack of visibility are ongoing talks between Iran and world powers to reinstate the 2015 nuclear deal.
Crude oil bulls however will take some comfort from the fact the reductions so far has primarily been driven by long liquidation while the appetite for short selling remains low. Last week oil posted its worst week in three and while the demand outlook into the second half looks strong, short-term challenges are likely to keep Brent rangebound, currently between $60 and $65.
Metals: The biggest change across the commodity sector was a 53% jump in the gold net long to a six-week high at 77.4k lots. Being the most dollar and interest sensitive of all commodities, hedge funds turned net buyers in response to the weaker dollar and lower yields. In addition the rejection below $1680/oz, now a double bottom, helped drive a 20% reduction in naked shorts while adding a dose of optimism into one of the worst performing commodities in 2021. With the other four metals including copper also being bought the total metal net long rose to 178k lots from a near two-year low.
We maintain a short-term neutral view on gold and while the twice rejection below $1680 points to a double bottom it still needs confirmation, hence the almost intense market focus on $1765 and the subsequent technical reaction on a break.
Agriculture: The grains sector saw a small rotation out of corn back into soybeans and wheat. Overall the net long in the three major crop contracts held steady at 533k lots, close to the average seen so far this year. However with 72% of the length held in corn it is the contract that currently has the biggest correction risk should the technical or current strong fundamental outlook change.
Selling of all four soft commodities extended into a sixth week with the most noticeable change being the 51% reduction in the Arabica coffee net long. Just as the price jumped on renewed expectations for a large world deficit in 2021-22, and recent dry weather in Brazil hurting an already drought-stricken crop in the world’s largest supplier.