Head of Commodity Strategy, Saxo Bank Group
Summary: Hedge funds continued to cut bullish commodity bets ahead of the G20 summit and the net-long across 26 major commodities hit its lowest since March 2016 in the week to November 27.
To download your copy of the Commitment of Traders: Commodities report for the week ending November 27, click here.
Ahead of this weekend’s G20 summit, which yielded two supportive meetings, hedge funds continued to cut bullish commodity bets. In the week to November 27 the net-long across 26 major commodities reached 562k lots, the lowest since March 2016.
However the 90-day ceasefire between the US and China has given growth dependent commodities such as industrial metals (HG Copper +2%) a boost overnight while the stronger Chinese renminbi has provided support to gold. The biggest move, however, has been crude oil, which received a psychological boost from Russia and Saudi Arabia agreeing to continue managing production into 2019. This was an important signal to send ahead of Thursday’s Opec meeting in Vienna, a meeting where a production cut of more than 1 million barrels is now expected to be announced.
Returning to the action ahead of the meeting as shown in the weekly Commitments of Traders report from the US Commodity Futures Trading Commission, we find in the table below that only cotton and a few livestock contracts managed to finish the reporting week higher. Biggest net-selling was seen in Brent crude oil, NY ULSD, soybean complex, corn and sugar.
If successful, Brent crude oil could still manage a return to $70/b before year end.
"China has agreed to start purchasing agricultural product from our farmers immediately." This statement from the White House following Saturday’s talk with China has helped send soybeans above $9/bu this Monday. The 1.9% jump however is a relatively small reaction not least considering that the sector led by the soybeans complex was by far the most shorted in the week to November 27.
Record US stockpiles of soybeans need to be shifted soon in order to have any meaningful price impact. Especially considering how favourable weather in Brazil continues to point to a potential record Brazilian soy crop, due to be harvested in a couple of months.
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