The second chart above shows how the speculative interest across 24 major commodities has reached a four-year high at almost 2.4 million lots representing a nominal value of 121 billion dollars. The top three in terms of net nominal exposure being crude oil ($30 bn), gold ($26 bn) and soybeans ($12 bn). The chart also shows that while the two previous peaks in speculative interest were primarily driven by energy, the recent build up has been spread across all three sectors. Not least the agriculture sector, which led by the three key crops, has seen a revival following several years of underperformance.
Crude oil reached a fresh ten-month high in early trading on U.S. versus Iran rumblings and vaccine-optimism before turning lower at the prospect for what increasingly looks like a grim period ahead with extended lockdowns seen across winter hit regions across the northern hemisphere. On the supply side, the market is also waiting for a OPEC+ decision on whether it can keep lifting output into a surging virus environment.
The immediate outlook for crude oil, especially at current levels, may be somewhat challenging as the global recovery in fuel demand continues to be pushed forward. OPEC is forecasting crude oil demand will rise to 95.9 million barrels/day this year, still well below the above 100 million barrels/day peak seen before the pandemic emerged a year ago. A recovery pace at this speed may also challenge OPEC+ which currently has close to 8 million barrels/day of spare capacity which they want to funnel back into the market at some point.
The speculative interest in crude oil, from a growth and reflation prospect, however, are likely to support the price through these first few demand challenging months of the year. During this time we see the upside for Brent crude oil limited to $55/b with support at $49/b followed by $46.6/b.