Head of Commodity Strategy, Saxo Bank Group
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Hedge funds cut bullish bets across 24 major commodities futures by 7% to 1.85 million lots in the week to June 5. The reduction was driven by continued selling across oil and fuels together with aggressive long-liquidation in soybeans, corn and cocoa.
Buyers were most noticeable in HG Copper (17-week high) and sugar where the net-short was cut to a 21-week low.
Increased political meddling with oil prices together with multiple uncertainties ahead of potential contentious meetings in Vienna on June 22 and 23 helped trigger a seventh weekly reduction in bullish crude oil bets. This the longest losing streak since 2013 saw both long and short positions reduced; the market is likely to remain rangebound ahead of Opec and non-Opec meetings which could trigger a major market reaction.
In WTI the net-long was cut by 3.3% to 313,000 lots, the lowest since last October. This as the discount to Brent stayed elevated due to the lack of midstream capacity to transport rising oil production from shale regions into the Gulf Coast. Net-longs in gasoline (RBOB) and diesel (ULSD) were also cut.
We saw a relatively quiet week in metals with gold struggling to break away from $1,300/oz ahead of the near-certain US rate hike on June 13. Silver showed signs of life with the XAUXAG ratio hitting a four months low. The net-long at just 4.3k lots has left plenty of space for additional buying should the technical and/or fundamental outlook (Industrial metals rally) continue to improve.
In HG Copper, strike threats to supplies from the world’s largest mine helped support a 63% increase in the net-long to 49,000 lots. With a 5% share of global output, the Escondida mine in Chile can on its own change global copper supply dynamics.
With the exception of wheat, funds turned sellers of corn and the soybean complex. The sector saw at 140,000 lots net reduction, not least due to a 89,000-lot reduction in the corn net-long. Tariffs speculation took its toll on soybean bulls while very strong readings on early growing conditions has seen December corn lose almost 8% during the past two weeks.
Softs were mixed with continued sugar buying taking the net-short to a 21-week low while in cocoa a 21% correction from the April 26 peak finally attracted some selling after bulls had stubbornly been holding onto an elevated net-long.