Head of Commodity Strategy, Saxo Bank Group
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Hedge funds continued to rotate out of metals and softs into energy and grains during the week ending August 7.
Overall, the combined net-long across 25 major futures markets rose by just 2% to 950,325 lots.
Crude oil was sold again with the 27,000-lot reduction in Brent and WTI taking the net-long down to 732,000 lots, the lowest since October. Traders remain unprepared for a potential drop below key support, currently at $71/barrel on Brent crude oil. The combined gross-short in Brent and WTI at 71,000 lots is close to the lowest seen during the past five years. This as the fear of supply disruption weighs harder than the risk to demand from trade wars and the recent increase in supply.
Natural gas buyers covered short positions as the price rallied in response to a persistent supply deficit despite record production.
Gold’s net-short reached a new record of 63,000 lots as funds continued to add length to the gross-short while cutting gross-longs. In silver the net-short increased by 88%, but is still only 32% of the recent record.
Renewed long liquidation in HG copper increased the net-short to a 22-month high. The focus on trade war and a Chinese slowdown has left the market exposed to a potential supply shock as strike action looms at the world’s biggest mine in Chile.
Grain traders were net-buyers of grains ahead of Friday’s important and as it turned out bearish WASDE report. Soybeans dropped by 4.7% while corn and wheat also tumbled after the report showed US farmers are set to harvest massive grain and oilseed crops this year and that scorching heat faced by some major growers in Australia, Europe, and CIS hasn’t curbed global grain supplies as much as expected. The Chicago wheat long reached 65,000 lots, a six-year high.
All four soft commodities were sold with traders turning net-short cocoa for the first time since January. This after the recent collapse which has seen the price drop by almost one-third since May.