Ole Hansen

Ole Hansen

Hansen is the author of the Weekly Commodity Update, which sets out the moves in commodities, and also provides clients with commodity related trade views under the #SaxoStrats brand. He is a regular contributor to both broadcast and print media including CNBC, Bloomberg, Reuters, Wall Street Journal, Financial Times and the Telegraph.

Risk Appetite Across Markets Taking A Hit After Fed Chair Powell's Hawkish Speech

Risk Appetite Across Markets Taking A Hit After Fed Chair Powell's Hawkish Speech

Ole Hansen Ole Hansen 31.08.2022 14:10
Summary:  Crude oil’s bounce from a six-month low has faded fast with risk appetite across markets taking a hit after Fed chair Powell's hawkish speech once again raised concerns that the central banks aggressive stance towards combatting runaway inflation will drive down growth and demand for crude oil and fuel products. In addition, the energy market has to deal with long liquidation into a low liquidity market, reduce gas-to-fuel focus as EU gas prices drop as well as Iraq, Libya and Iran developments. Crude oil’s bounce from a six-month low has faded fast following Friday’s hawkish message from Jerome Powell, the Federal Reserve Chairman, which once again raised concerns that the central banks aggressive stance towards combatting runaway inflation would mean lower growth and with that lower demand for crude oil and fuel products. The battle between these macro concerns continues to battle with micro developments, the majority of which still point to tightness during the coming months. In Europe, the gas and power crisis continue with punitively high prices attracting substitution demand into fuel products like diesel and heating oil. In the short-term the price of gas into the autumn month will continue to be dictated by Russian flows, and not least whether Gazprom (and Putin) as announced will resume flows on the Nord Stream 1 pipeline following the three-day maintenance shutdown that ends at 0100 GMT on September 3. Other developments currently impacting the market: China’s continued battle with Covid infections which is currently found in 31 provinces, and which has led to fresh curbs being implemented, among others in two of southern China’s most economically vibrant areas. Deadly turmoil in Baghdad after Moqtada Al-Sadr, a prominent cleric, decided to resign from politics, thereby deepening a political crisis that has left the country without a government since last October’s election. For now, the clashes have not spread to oil-rich area and exports from one of OPEC’s biggest producers remain uninterrupted. Clashes in Libya’s capital Tripoli over the weekend which left at least 32 people dead have raised risks of a civil war in Libya, a very volatile producer which has seen its output swing between 0.7 and 1.2 million barrels per day during the past year. On the supply side, the market will be watching the impact of the EU embargo on Russian oil which will begin impacting supply from December and the 180-million-barrel release, at a rate of one million barrel per day, from US Strategic Reserves that look set to run until October 21. In the following months the US government plans to buy back 60 million barrels, a decision that is likely to be delayed given the prolonged war in Ukraine. Finally, an Iran nuclear deal has yet to be reached, but if successful it could lead to millions of barrels of on and offshore stored oil being released into the market. WTI Crude Oil: Following Monday’s short squeeze the subsequent sell-off has forced recently established longs to reduce their exposure. Developments that from a technical perspective have opened the risk of a return towards key support around the mid-August low at $85.5/b. Source: Saxo Group Lack of liquidity and speculative positions being wrongfooted have both added to the latest gyration which saw the biggest jump in six weeks on Monday being  followed by a near 9% two-day drop. In the week to August 23, hedge funds added 80k lots of crude oil and fuel exposure, the biggest weekly increase since January, and the latest tumble may have forced many too hastily exit those recently established and now loss-making positions.            With the summer holiday driving season winding up we are seeing gasoline refinery margins trading sharply lower while demand for diesel as a substitute for expensive gas has supported diesel margins, both in the US and especially in Europe. However, since Friday’s peak in EU gas prices we have seen softer but still elevated margins there as well.              The weekly oil and fuel stock report from the US Energy Information Administration will be watched closely given its frequency and with that the ability to provide an up-to-date snapshot of the current supply and demand situation across crude oil and fuel. Last night the API reported a 600k barrels increase in oil stocks and a combined 5.1 million barrels drop in gasoline and distillates stocks. The report will also provide the EIA’s assessment of production, which has been adjusted lower for the past two weeks to 12 million barrels a day, and somewhat short of the EIA’s latest end of year forecast of 12.45 million. Crude and distillates exports will also be watched after the combined figure hit a record last week. As per usual I will post the charts and tables on Twitter once the report has been released at 14:30 GMT.               Source: Oil drops as hawkish Fed drives fresh demand concerns
Commodities Condition After Fed Chair Powell's Speech

Commodities Condition After Fed Chair Powell's Speech

Ole Hansen Ole Hansen 29.08.2022 13:39
Summary:  Our weekly Commitment of Traders update highlights future positions and changes made by hedge funds and other speculators across commodities and forex during the week to August 23. A week that saw financial markets trade increasingly nervous with stocks selling off while the dollar and yields rose ahead of Friday’s speech by Federal Reserve Chair Jerome Powell. Developments that triggered fund selling in precious metals while energy and grains was in demand due to a tightening supply outlook Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial.   Link to latest report   This summary highlights futures positions and changes made by hedge funds across commodities and forex during the week to August 23. A week that saw financial markets trade increasingly nervous ahead of Friday’s Jackson Hole speech from Federal Reserve Chair Jerome Powell. Stocks sold off while the dollar and bonds yields rose in anticipation of a hawkish message. In the end that was exactly what Powell delivered on Friday when he cautioned about loosening monetary conditions prematurely while flagging the likely need for restrictive monetary policy for longer than the market had priced in to curb high inflation. Commodities The Bloomberg Commodity index rose 1.6% during the reporting week with concerns about the impact on demand from central banks hiking rates to curb economic growth being more than offset by concerns about a tightening supply outlook, especially across energy and key food commodities. Precious metals being the only sector struggling amid the mentioned dollar and yield strength. Overall hedge funds increased their exposure for a fourth consecutive week, this time by 13% to 1.1 million contracts, some 264k above the end of July low point.  Energy: Funds increased bets on rising crude oil prices for the first time in five weeks with the combined long in WTI and Brent being lifted by 22% to 338k lots. This in response to a near +8% rally during the week as the focus returned to a continued tight supply outlook with the gas-to-fuel switching providing an additional layer of support. While the combined gross long was increased by 20k lots, it was a 40k lots capitulation among short sellers that provided the main input to the change.Surging gas prices driving increased demand for diesel helped lift gas oil by 10% and the net long by 24% to 76.5k lots, still only half the 152k lots peak seen from last October. Natural gas traders cut their net short by 66% with the bulk of the change being driven by fresh longs being added. Metals: Precious metals saw renewed selling ahead of Jackson Hole with the stronger dollar and rising yields triggering a fresh round of short selling by funds. The result being a 34% reduction in the gold long to 30k while silver and platinum saw big increases in already established net short positions. Copper found support after China’s government announced fresh initiatives to support an economy struggling with Covid lockdowns and a property sector crisis. The result being a 71% reduction in the net short to -4.8k lots, an 11-week low. Agriculture: The grains sector, led by corn and soybeans, continued to recover from the June to July 25% correction. Buyers bought the sector for a fourth consecutive week with an improved fundamental outlook due to adverse weather in the US and China triggering fresh buying interest. The bulk of the 111k lots increase during this time has been driven by corn with the soybean complex also picking up steam while the two wheat contracts have seen net selling during this time.     Forex The forex market responded to a 1.6% increase in the Dollar index ahead of Jackson Hole by turning broad buyers albeit in small size of dollars against nine IMM currency futures. The two exceptions being GBP and CHF where short covering reduced the net short in both. The euro net short reached 44k lots or €5.5 billion, the highest since March 2020 when the market was in covid panic mode. Overall the gross dollar long reached a three week high at $18 billion, down 24% from last months peak and high for the year at $23.8 billion.   What is the Commitments of Traders report? The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class. Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and otherFinancials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and otherForex: A broad breakdown between commercial and non-commercial (speculators) The reasons why we focus primarily on the behavior of the highlighted groups are: They are likely to have tight stops and no underlying exposure that is being hedged This makes them most reactive to changes in fundamental or technical price developments It provides views about major trends but also helps to decipher when a reversal is looming   Source: COT: Crude oil and grains bought despite Jackson Hole jitters
Commodities Condition After Fed Chair Powell's Speech

Commodities Can Weather Headwinds From An Economic Slowdown

Ole Hansen Ole Hansen 26.08.2022 15:07
Summary:  The commodity sector continues to recover with the Bloomberg Commodity Index clawing back more than half of what it lost during the June to July 20% correction. It supports our long-held view that commodities can weather headwinds from an economic slowdown with supply of key commodities being equally challenged. Gains this past week were seen across most sectors, led by agriculture and energy, the latter seeing rising demand diesel as the cost of gas continued its near vertical ascent. PLEASE NOTE: This update was written before Friday’s Jackson Hole speech from Federal Reserve Chair Jerome Powell The commodity sector continues to recover as the Bloomberg Commodity Index claws back more than half of what it lost during the June to July 20% correction. Gains were seen across most sectors, led by agriculture as weather woes lifted the cost of coffee and the three major crops – especially corn. Industrial metals received a boost from China’s continued efforts to support its weakening economy by announcing more stimulus policies that would pump billions into infrastructure projects. The energy sector was supported by surging gas prices driving up demand for diesel and Saudi Arabia flagging the risk that OPEC+ may cut production to stabilise volatile markets.In financial markets, the dollar reached a fresh 20-year high against the euro as Europe’s energy crisis continued to pressure the economic outlook for the region. US stocks tumbled and bond yields rose ahead of Friday’s eagerly awaited speech by Federal Reserve Chair Jerome Powell. In which, he was expected to reiterate his determination to bring down inflation by continuing to hike interest rates. Inflation-fighting measures, such as hiking interest rates and removing stimulus into a post-pandemic economic slowdown, was the main driver behind the recent correction in commodities. Overall, however, we maintain the view that commodities can weather headwinds from an economic slowdown with supply of key commodities being equally challenged. In the long term, support for commodities will be driven by underinvestment, urbanisation, the green transformation and deglobalisation. In the short term, prices are likely to be supported by the unfolding energy crisis in Europe, Russia-sanctions related supply disruptions, adverse weather raising fresh concerns about food supplies, and China’s efforts to support its economy.    Crude oil sellers having second thoughts While the macro-economic outlook remains challenging due to the lower growth outlook and recent dollar strength, crude oil and the product markets have nevertheless managed a strong rebound this past week. The energy crisis in Europe continues to strengthen, with gas and power prices surging to levels that measured in dollars per barrel of crude oil equivalent equates to $530 and $1,400 per barrel, respectively. The latest surge was driven by recent low-water level disruptions on the river Rhine and Gazprom announcing a three-day closure of the Nord Stream 1 pipeline due to maintenance, starting on August 31.Should Gazprom (President Putin) decide to weaponize supplies further and keep the pipeline shut after maintenance ends, the risk of further spikes remains – thereby extending the already wide price gap between gas and crude oil. A development that will further support an already very visible increase in demand for fuel-based product, especially diesel and later on this autumn also heating oil, at the expense of gas. This gas-to-fuel switch has supported the recent recovery with the US last week shipping a record amount of diesel to energy-starved customers looking for alternatives to Russian supplies.However, the trigger which eventually sent crude oil higher this week were comments from the Saudi Energy Minister and other OPEC members. These comments flagged possible cuts to production following a recent and growing disconnect between falling futures markets and a physical market that has yet to show weakness. A discrepancy we have noticed as well in recent weeks with crude oil futures being sold as a hedge against an economic slowdown with little focus on the physical market and its current price supportive supply and demand fundamentals.Having found support after retracing 61.8% of the December to March 111% surge, the Brent crude oil futures contract has now returned to $100 per barrel with trendline resistance, currently $102.25 preventing a further upside push. A continued recovery at this point may force money managers to reassess their exposure in Brent and WTI with a potential short-squeeze brewing. During a three-week period to August 16, speculative traders reduced their net long to 278k lots, the lowest since April 2020. Source: Saxo Group Rising grain prices and strong dollar re-ignite food supply worries. U.S. corn reached a two-month high and, together with more muted gains across the other major US traded crop futures, the Bloomberg Commodity Grain Index has now risen by 12% following the May to July correction which at least temporarily helped reduced worries about a global food crisis. However, with bad weather continuing to impact production and with Ukraine exports still well below previous years, the mentioned worries have started to re-emerge – not least considering the recent run up in the dollar which has only made matters worse for buyers of grains in local currencies.The latest run up in US corn has been supported by concerns that hot and dry weather in the Midwest during the final crop development period may limit the production outcome. The US is the biggest producer and exporter of corn – which is used in everything from animal feed to biofuels and sweeteners – and a poor US harvest will likely rekindle recent worries about food security that was driven by war, drought and the overall impact of climate change. In addition to the above and the mentioned slow pace of shipments from Ukraine, we are currently seeing drought in China threatening the local harvest which could lead to higher imports. Dryness within the European Union this summer has continued to drive production forecast lower.   Coffee prices surge on Brazil and Vietnam supply worries Both Arabica and Robusta coffee futures returned to strength, both rallying strongly on signs of a deteriorating supply outlook. Stockpiles in Vietnam – the world’s top supplier of the Robusta variety – are expected to halve by the end of September from a year earlier while stocks of the Arabica bean monitored by the ICE exchange has slumped to a 23-year low. Freak weather in South America during the past year has decimated the production outlook for Brazil, Colombia and Central America, while recent dryness and a continued surge in the cost of fertilizer have already started to raise concerns about next year’s crop. The Arabica futures contract paused after reaching the June high at $2.42 per pound, but the risk remains that it may push towards the 11-year high at $2.605 reached in February Industrial metals find support in China Industrial metals, led by steel, aluminum and zinc responded positively to news that the Chinese government has stepped up its efforts to support an economy damaged by repeated Covid lockdowns and a property market slump. China’s State Council announced a 1 trillion yuan ($146 billion) stimulus package with 300 billion going towards infrastructure projects, thereby doubling the amount the government has pledged towards project that will boost demand for industrial metals.Following a period of range trading between $3.55 to $3.73, High Grade Copper broke higher on Friday and may now target $3.85/lb next, but it will likely require a rally above $4/lb before speculators, having traded the metal with a short bias since April, start to reverse back to a net long. The primary focus remains on China and whether the mentioned stimulus measures will be strong enough to shore up enough support for the upside push to continue. Source: Saxo Group Gold trades steady despite fresh dollar and yield strength Gold managed a small bounce but overall, it continued its recent struggle amid headwinds from a stronger dollar and rising bond yields. Not least ahead of Friday’s Jackson Hole speech from Fed chair Powell with gold traders worried that a hawkish statement would provide additional strength to the dollar and yields, thereby further delaying gold's return to strength by potentially sending it below support at $1729. In a year where inflation has been surging higher, some investors may feel hard done by gold’s negative year-to-date performance in dollars but taking into account it had to deal with the biggest jump in real yields in more than 25 years and the dollar rising 10% against a broad basket of major currencies, its performance, especially for non-dollar investors remains acceptable. We maintain the view that the market is overly optimistic with the assumption that central banks can successfully bring inflation down to the levels currently being projected. Such a scenario would create a challenging outlook for interest rate and growth sensitive stocks, thereby raising the need for tangible assets such as gold and commodities in general to weather a period of low growth and high inflation. Natural gas, now the biggest component in the Bloomberg Commodity index The BCOM index together with the S&P GSCI and DBIQ Optimum Yield Diversified Commodity Index belongs to the heavy weights within the global investment industry for commodities. It tracks the performance of 23 major commodity futures targeting a one-third exposure in the main sectors of energy, metals and agriculture. The target weights are set once a year every January and if prices shift significantly during the year, a reweighting will not occur until the following January. However, an astonishing 160% year-to-date surge in US natural gas futures has more than doubled its weight to 17.2% from 8%, and made it the biggest component in the BCOM index for the first time ever – more than double that of WTI and Brent combined. From a sector perspective, it has helped lift the total energy exposure by 9.2% to 40.9%. All other sectors and sub-sectors have seen reductions with the biggest impacting industrial and precious metals by a combined reduction of 7.5%. These moves away from target weights will not be adjusted until next January. At which point, we may see some major activity as the rebalancing process would see selling of gainers, especially natural gas while the biggest losers will be bought.   Source: WCU: Weather woes and energy crisis lift commodities
The Natural Gas Downside  Looks Supported By The 200-day SMA

US Herny Hub Natural Gas As The Biggest Component In The Bloomberg Commodity Index!

Ole Hansen Ole Hansen 25.08.2022 13:33
Summary:  US Henry Hub Natural gas has following a 160% year-to-date surge become the biggest component in the Bloomberg Commodity Index, and it highlights just how extreme market moves and developments have been during the past year across the commodity sector. In this we look at what it means and what investors in commodity tracking funds should be aware of US Henry Hub Natural gas (ticker: NG) has following a 160% year-to-date surge become the biggest component in the Bloomberg Commodity Index (BCOM), the first time this has occurred in the index’ +30 year history, and it highlights just how extreme market moves and developments have been during the past year across the commodity sector. The BCOM index which together with the S&P GSCI and DBIQ Optimum Yield Diversified Commodity Index belongs to the heavy weights within the global investment industry, tracks the performance of 23 major commodity futures targeting a one-third exposure in the main sectors of energy, metals and agriculture. The target weights are set once a year every January and if prices shift significantly during the year, a reweighting will not occur until the following January. The mentioned 160% year-to-date surge in US natural gas futures has more than doubled its weight to 17.2% from 8%, and in the process made it the biggest component in the BCOM index, more than double that of WTI and Brent combined. From a sector perspective, and given strong gains across the other energy components, especially fuel-based products, it has lifted the total energy exposure by 9.2% to 40.9%. All other sectors and sub-sectors share the reduction with the biggest seen in metals with industrial and precious down by a combined 7.5%. What it means?The BCOM index is likely to become more volatile with its performance increasingly dependent on developments within the energy sector, especially natural gas. Recently the price hit $10 per MMBtu before suffering a 10% setback due to a further delay of the restart of the Freeport LNG export plant which has been closed for months following an explosion. The expected restart will increase demand for US gas and with that slow the process of adding stockpiles before the winter extraction season starts in a couple of months’ time. The biggest threat to the energy sectors strong performance is the combination of a deep recession eroding demand and a peaceful solution to the war in Ukraine sending EU gas prices sharply lower in anticipation of flows from Russia normalizing. What should investors in commodity tracking ETF’s do?The short answer is nothing as the reasons for investing in tangible assets such as commodities has not changed. The other commodity tracking funds mentioned earlier, and which also include the CRB Index will all be affected depending on their individual exposure to natural gas. Overall, the BCOM has from the outset the largest exposure and is therefore the index impacted the most. From an investor perspective these types of futures tracking commodity funds remains a cheap solution to gain exposure to commodities. With natural gas being notoriously volatile some increased price swings on the index can be expected, and if the strong gains are being maintained we should expect a very active rebalancing next January where gainers will be sold, and losers bought in order to reset the target weights. Source: Bloomberg, Saxo Group   Source: NatGas surge weighs heavily in commodity indices
The most important economic events of the week 08/29/2022 – 09/04/2022

Brent - Gas Oil (Diesel) Crack Spread Jump 55% This Month!

Ole Hansen Ole Hansen 24.08.2022 14:12
Summary:  Crude oil’s bounce from a six-month low has so far seen Brent crude oil return above $100 per barrel while WTI following a brief dip to the mid-80’s has turned higher to trade around $95 per barrel. With oil fundamentals still very supportive, the market seems to be realizing the energy market is not the best hedge against an economic slowdown, and it has raised the risk of a response from specualators who recently cut bullish oil bets to an April 2020 low. Crude oil’s bounce from a six-month low has so far seen Brent crude oil return above $100 per barrel while WTI following a brief dip to the mid-80’s has turned higher to trade around $95 per barrel. In our previous update we mentioned the fact that crude oil, in a downtrend since June, had started to show signs of selling fatigue as the technical outlook had started to turnmore price friendly while fresh fundamental developments added some support as well. After finding support below $94 per barrel, the 61.8% retracement of the December to March surge, Brent crude oil now trades back above its 200-day simple moving average with the next key upside hurdle being an area below $102.50 per barrel. Source: Saxo Group While the macro-economic outlook remains challenging due to the lower growth outlook and renewed dollar strength, recent developments within the oil market, so-called micro developments, have raised the risk of a rebound. The energy crisis in Europe continues to strengthen, with gas and power prices surging to levels that measured in dollars per barrel of crude oil equivalent equates to $470 and $1,050 per barrel respectively. The latest surge being driven by recent low-water level disruptions on the river Rhine and Gazprom announcing a three-day closure of the Nord Stream 1 pipeline due to maintenance, starting on August 31.  Should Gazprom (Putin) decide for geopolitical reasons to keep the pipeline shut after maintenance ends, the risk of further spikes remains, thereby extending the already wide price gap between gas and crude oil. A development that will further support an already very visible increase in demand for fuel-based product, especially diesel, at the expense of gas. This gas-to-fuel switch was specifically mentioned by the IEA in their August update as the reason for raising their 2022 global oil demand growth forecast by 380k barrels per day to 2.1 million barrels per day. Since the report was published the incentive to switch has increased even more, and the result being sharply higher refinery margins for diesel across the world, led by Europe which so far this month has seen the Brent – Gas Oil (diesel) crack spread jump 55%.  The trigger which eventually sent crude oil higher this week where comments from the Saudi Energy Minister flagging possible cuts to production amid an increased disconnect between falling futures markets and a physical market that has yet to show weakness. While his comment sent the ball rolling, yesterday’s API report gave it an extra spin, resulting in the rally back above $100 per barrel. A recovery at this point may force money managers to reassess their exposure in Brent and WTI with a potential short-squeeze brewing. During a three-week period to August 16 these speculative traders increased their gross short positions in Brent and WTI by 43k lots to 125k lots, while cutting gross longs by 61k lots to 403k lots, developments that has reduced the net long to 278k lots, the lowest since April 2020.          Later today the EIA publishes its weekly oil and fuel stock report and expectations for a bigger-than-expected draw in crude oil stocks has risen after the American Petroleum Institute reported a 5.6 million barrel drop together with small increases in gasoline and diesel stocks. Traders will also be watching implied gasoline demand which reached a high for the year in the previous week. Crude oil hungry refineries around the world, balking at buying Russian crude, helped drive US exports to a record 5 million barrels per day, and the market will be watching this pace as well as signs of a recovery in production which dipped 100k barrels per day during the previous reporting week.  The result of the EIA report will be published on my Twitter profile: @ole_s_hansen.    Source: Brent on watch for short squeeze above $100
Price Of Gold Is Right On Top Of The Lower Boundary

Gold Is At Risk Of Being Liquidated!? Ukraine Shipment Accelerates

Ole Hansen Ole Hansen 22.08.2022 13:47
Summary:  Our weekly Commitment of Traders update highlights future positions and changes made by hedge funds and other speculators across commodities and forex during the week to August 16. A week that potentially saw a cycle peak in US stocks and where the dollar and treasury yields both traded calmly before pushing higher. Commodities meanwhile continued their recent recovery with funds being net buyers of most contracts, the major exceptions being gold and crude oil Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial. Link to latest report This summary highlights futures positions and changes made by hedge funds across commodities and forex during the week to August 16. A week that potentially saw a cycle peak in US stocks with the S&P 500 reversing lower after reaching a four-month high, and where the dollar and treasury yields both traded calm before pushing higher. Commodities meanwhile continued their recent recovery with all sectors, except precious metals and grains recording gains. Commodities Hedge funds were net buyers for a third week with the total net long across the 24 major commodity futures tracked in this update rising by 14% to reach a seven week high at 988k lots. Some 56% below the recent peak reached in late February before Russia’s attack on Ukraine drove an across-the-board volatility spike which forced funds to reduce their exposure. Since then and up until early July, worries about a global economic slowdown, caused by a succession of rapid rate hikes in order to kill inflation, was one of the key reasons for the slump in speculative length.Returning to last week, the 123k lot increase was split equally between new longs being added and short positions being scaled back, and overall the net increase was broad led by natural gas, sugar, cattle and grains with most of the selling being concentrated in crude oil and gold. Energy: Weeks of crude oil selling continued with the combined net long in WTI and Brent falling by 26k lots to 278k lots, the lowest belief in rising prices since April 2020. Back then the market had only just began recovering the Covid related energy shock which briefly sent prices spiraling lower. While funds continued to sell crude oil in anticipation of an economic slowdown the refined product market was sending another signal with refinery margins on the rise again, partly due surging gas prices making refined alternatives, such as diesel, look cheap. As a result, the net long in ICE gas oil was lifted by 24% to 62k lots while RBOB gasoline and to a lesser extent ULSD also saw net buying. The net short in Henry Hub natural gas futures was cut by 55% as the price jumped by 19%. Metals: Renewed weakness across investment metals triggered a mixed response from traders with gold seeing a small reduction in recently established longs while continued short covering reduced bearish bets in silver, platinum and palladium. With gold resuming its down move after failing to find support above $1800, the metal has been left exposed to long liquidation from funds which in the previous two weeks had bought 63.3k lots. Copper’s small 1% gain on the week supported some additional short covering, but overall the net short has stayed relatively stable around 16k lots for the past six weeks. Agriculture: Speculators were net buyers of grains despite continued price weakness following the latest supply and demand report from the US Department of Agriculture on August 12, and after shipments of grains from Ukraine continued to pick up speed. From a near record high above 800k lots on April 19, the net long across six major crop futures went on to slump by 64% before buyers began dipping their toes back in to the market some three weeks ago. Buying was concentrated in bean oil and corn while the wheat sector remained challenged with the net long in Kansas wheat falling to a 2-year low. The four major softs contract saw strong buying led by sugar after funds flipped their position back to a 13.4k lots net long. The cocoa short was reduced by 10% while the coffee long received a 25% boost. Cotton’s 18% surge during the week helped lift the long by 35% to 44.7k lots.     Forex A mixed week in forex left the speculative dollar long close to unchanged against ten IMM futures and the DXY. Selling of euro saw the net short reach a fresh 2-1/2-year high at 42.8k lots or €5.3 billion equivalent while renewed selling of JPY, despite trading higher during the reporting week, made up most of the increase in dollar length. Against these we saw short covering reduce CHF, GBP and MXN short while CAD net long reached a 14-month high.    What is the Commitments of Traders report? The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class. Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and otherFinancials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and otherForex: A broad breakdown between commercial and non-commercial (speculators) The reasons why we focus primarily on the behavior of the highlighted groups are: They are likely to have tight stops and no underlying exposure that is being hedged This makes them most reactive to changes in fundamental or technical price developments It provides views about major trends but also helps to decipher when a reversal is looming   Source: COT: Gold and oil left out as funds return to commodities
Commodities: Deglobalization, Green Transformation, Urbanization And Other Things That Got Involved

Commodities: Deglobalization, Green Transformation, Urbanization And Other Things That Got Involved

Ole Hansen Ole Hansen 19.08.2022 15:50
Summary:  Commodities traded with a softer bias this week as the focus continued to rest on global macro-economic developments, in some cases reducing the impact of otherwise supportive micro developments, such as the fall in inventories seen across several individual commodities. Overall, however, we do not alter our long-term views about commodities and their ability to move higher over time, with some of the main reasons being underinvestment, urbanization, green transformation, sanctions on Russia and deglobalization. Commodities traded with a softer bias this week as the focus continued to rest on global macro-economic developments, in some cases reducing the impact of otherwise supportive micro developments, such as the fall in inventories seen across several individual commodities. The dollar found renewed strength and bond yields rose while the month-long bear-market bounce across US stocks showed signs of running out of steam.The trigger being comments from Federal Reserve officials reiterating their resolve to continue hiking rates until inflation eases back to their yet-to-be revised higher long-term target of around 2%. Those comments put to rest expectations that a string of recent weak economic data would encourage the Fed to reduce the projected pace of future rate hikes.The result of these developments being an elevated risk of a global economic slowdown gathering pace as the battle against inflation remains far from won, not least considering the risk of persistent high energy prices, from gasoline and diesel to coal and especially gas. A clear sign that the battle between macro and micro developments continues, the result of which is likely to be a prolonged period of uncertainty with regards to the short- and medium-term outlook.Overall, however, these developments do not alter our long-term views about commodities and their ability to move higher over time. In my quarterly webinar, held earlier this week, I highlighted some of the reasons why we see the so-called old economy, or tangible assets, performing well over the coming years, driven by underinvestment, urbanization, green transformation, sanctions on Russia and deglobalization. Returning to this past week’s performance, we find the 2.3% drop in the Bloomberg Commodity Index, seen above, being in line with the rise in the dollar where gains were recorded against all the ten currencies, including the Chinese renminbi, represented in the index. It is worth noting that EU TTF gas and power prices, which jumped around 23% and 20% respectively, and Paris Milling wheat, which slumped, are not members of the mentioned commodity index.Overall gains in energy led by the refined products of diesel and US natural gas were more than offset by losses across the other sectors, most notably grains led by the slump in global wheat prices and precious metals which took a hit from the mentioned dollar and yield rise. Combating inflation and its impact on growth remains top of mind Apart from China’s slowing growth outlook due to its zero-Covid policy and housing market crisis hitting industrial metals, the most important driver for commodities recently has been the macro-economic outlook currently being dictated by the way in which central banks around the world have been stepping up efforts to curb runaway inflation by forcing down economic activity through aggressively tightening monetary conditions. This process is ongoing and the longer the process takes to succeed, the bigger the risk of an economic fallout. US inflation expectations in a year have already seen a dramatic slump but despite this the medium- and long-term expectations remain anchored around 3%, still well above the Fed’s 2% target.Even reaching the 3% level at this point looks challenging, not least considering elevated input costs from energy. Failure to achieve the target remains the biggest short-term risk to commodity prices with higher rates killing growth, while eroding risk appetite as stock markets resume their decline. These developments, however, remain one of the reasons why we find gold and eventually also silver attractive as hedges against a so-called policy mistake. Global wheat prices tumble The prospect for a record Russian crop and continued flows of Ukrainian grain together with the stronger dollar helped push prices lower in Paris and Chicago. The recently opened corridor from Ukraine has so far this month seen more than 500,000 tons of crops being shipped, and while it's still far below the normal pace, it has nevertheless provided some relief at a time where troubled weather has created a mixed picture elsewhere. The Chicago wheat futures contract touched a January low after breaking $7.75/bu support while the Paris Milling (EBMZ2) wheat traded near the lowest since March. With most of the uncertainties driving panic buying back in March now removed, calmer conditions should return with the biggest unknown still the war in Ukraine and with that the country’s ability to produce and export key food commodities from corn and wheat to sunflower oil. EU gas reaches $73/MMBtu or $415 per barrel of oil equivalent Natural gas in Europe headed for the longest run of weekly gains this year, intensifying the pain for industries and households, while at the same time increasingly threatening to push economies across the region into recession. The recent jump on top of already elevated prices of gas and power, due to low supplies from Russia, has been driven by an August heatwave raising demand while lowering water levels on the river Rhine. This development has increasingly prevented the safe passage of barges transporting coal, diesel and other essentials, while refineries such as Shell’s Rhineland oil refinery in Germany have been forced to cut production. In addition, half of Europe’s zinc and aluminum smelting capacity has been shut, thereby adding support to these metals at a time the market is worried about the demand outlook.An abundance of rain and lower temperatures may in the short term remove some of the recent price strength but overall, the coming winter months remain a major worry from a supply perspective. Not least considering the risk of increased competition from Asia for LNG shipments. Refinery margin jump lends fresh support to crude oil Crude oil, in a downtrend since June, is showing signs of selling fatigue with the technical outlook turning more price friendly while fresh fundamental developments are adding some support as well. Worries about an economic slowdown driven by China’s troubled handling of Covid outbreaks and its property sector problems as well as rapidly rising interest rates were the main drivers behind the selling since March across other commodity sectors before eventually also catching up with crude oil around the middle of June. Since then, the price of Brent has gone through a $28 dollar top to bottom correction. While the macro-economic outlook is still challenged, recent developments within the oil market, so-called micro developments, have raised the risk of a rebound. The mentioned energy crisis in Europe continues to strengthen, the result being surging gas prices making fuel-based products increasingly attractive. This gas-to-fuel switch was specifically mentioned by the IEA in their latest update as the reason for raising their 2022 global oil demand growth forecast by 380k barrels per day to 2.1 million barrels per day. Since the report was published, the incentive to switch has increased even more, adding more upward pressure on refinery margins. While pockets of demand weakness have emerged in recent months, we do not expect these to materially impact on our overall price-supportive outlook. Supply-side uncertainties remain too elevated to ignore, not least considering the soon-to-expire releases of crude oil from US Strategic Reserves and the EU embargo of Russian oil fast approaching. In addition, the previously mentioned increased demand for fuel-based products to replace expensive gas. With this in mind, we maintain our $95 to $115 range forecast for the third quarter. Gold and silver struggle amid rising dollar and yields Both metals, especially silver, were heading for a weekly loss after hawkish sounding comments from several FOMC members helped boost the dollar while sending US ten-year bond yields higher towards 3%. It was the lull in both that helped trigger the recovery in recent weeks, and with stock markets having rallied as well during the same time, the demand for gold has mostly been driven by momentum following speculators in the futures market. The turnaround this past week has, as a result of speculators' positioning, been driven by the need to reduce bullish bets following a two-week buying spree which lifted the net futures long by 63k lots or 6.3 million ounces, the strongest pace of buying in six months. ETF holdings meanwhile have slumped to a six-month low, an indication that investors, for now, trust the FOMC’s ability to bring down inflation within a relatively short timeframe. An investor having doubts about this should maintain a long position as a hedge against a policy mistake. Some investors may feel hard done by gold’s negative year-to-date performance in dollars, but taking into account it had to deal with the biggest jump in real yields since 2013 and a surging dollar, its performance, especially for non-dollar investors relative to the losses in bonds and stocks, remains acceptable. In other words, a hedge in gold against a policy mistake or other unforeseen geopolitical events has so far been almost cost free.   Source: WCU: Bearish macro, bullish micro regime persists
Oil Is An Indicator Of The Health Of The Global Economy

Crude Oil Has A Selling Weariness? Europe Prefers Oil Over Gas!?

Ole Hansen Ole Hansen 18.08.2022 16:14
Summary:  Crude oil, in a downtrend since June, is showing signs of selling fatigue with the technical outlook turning more price friendly while fresh fundamental developments are adding some support as well. The energy crisis in Europe continues to strengthen, most recently due to lower water levels on the river Rhine preventing the movement of barges carrying coal and fuel products such as diesel. The result being an increased gas-to-fuel switching supporting the demand outlook for crude oil. Crude oil, in a downtrend since June, is showing signs of selling fatigue with the technical outlook turning more price friendly while fresh fundamental developments are adding some support as well. Worries about an economic slowdown driving by China’s troubled handling of Covid outbreaks, and its property sector problems as well as rapidly rising interest rates, were the main drivers behind the selling seen across commodities in recent months. Crude oil with its strong underlying fundamentals, with tight supply driven by Russia sanctions and OPEC struggling to lift production, was the last shoe to drop and since the mid-June peak, speculators and macroeconomic focused funds have been net sellers of both WTI and Brent crude oil futures. With most of these market participants using the front of the futures curve, the selling has seen the forward curve flatten, a development that is normally viewed as price negative as it signals reduced tightness in the market. However, for that to ring true we should see inventory levels of crude oil and fuel products rise while refinery margins should ease. None of these developments have occurred and it strengthens our belief that the weakness sign has more to do with position adjustments and short positions being implemented by traders focusing on macro instead of micro.  In the week to August 9, the combined net long in Brent and WTI slumped to 304k lots a level last seen in April 2020, and 209k lots below the mid-June peak.  While the macro-economic outlook is still challenged, recent developments within the oil market, so-called micro developments, have raised the risk of a rebound. The energy crisis in Europe continues to strengthen, most recently due to lower water levels on the river Rhine preventing the movement of barges carrying coal and fuel products such as diesel. The result being surging gas prices as utilities are forced to buy more gas to keep the turbines running. This week the cost of Dutch TTF benchmark gas reached $400 per barrel of crude oil equivalent. Such a wide gap between oil and gas has and will continue to attract increased demand for fuel-based product at the expense of gas and this switch was specifically mentioned by the IEA in their latest update as the reason for raising their 2022 global oil demand growth forecast by 380k barrels per day to 2.1 million barrels per day. Since the report was published the incentive to switch has increased even more, adding more upward pressure on refinery margins, so called crack spreads (EU diesel crack shown below as an example) As mentioned, the recent selling pressure together with a deteriorating macro-economic backdrop have been the main drivers behind crude oils near 40-dollar slump since mid-June. The WTI chart below points to support at $85.50, a level almost reached on Tuesday. The price action is currently confined within a declining wedge and a break to the upside could trigger a strong buying response. For that to happen the price first needs to go back above $92 and the 21-day simple moving average, currently at $92.85. Source: Saxo Bank   How to invest in energy and the unfolding energy crisis? By Peter Garnry, Head of Equity StrategySummary:  We are used to not think about the energy sector, but the galloping global energy crisis has illuminated our deficits in primary energy due to years of underinvestment in fossil fuels and renewable energy sources inability to scale fast enough with the green transformation and electrification of our economy. It seems more likely now that the non-renewable and the renewable energy sector will both provide attractive returns as we will need both to overcome our short-term energy crisis and long-term aspirations of a greener energy future.   Source: Refinery margin jump lends fresh support to crude
The Commodity Sector Has Dropped Significantly

People Are Buying Gold. SIlver And Copper Stopped? Crude Oil Weakness

Ole Hansen Ole Hansen 16.08.2022 09:23
Summary:  Our weekly Commitment of Traders update highlights future positions and changes made by hedge funds and other speculators across commodities and forex during the week to August 9. A relatively quiet week where a continued improvement in risk appetite drove stocks higher while softening the dollar. Some commodity positions, with crude oil the major exceptions, showed signs of having reached a trough following weeks of heavy selling Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial. Link to latest report This summary highlights futures positions and changes made by hedge funds across commodities and forex during the week to August 9. A relatively quiet summer holiday impacted week where stocks traded higher ahead of last week’s CPI and PPI print after better than expected economic data helped reduce US recession fears while the market was looking for inflation to roll over. The dollar traded a tad softer, bond yields firmed up while commodities showed signs of having reached a trough following weeks of heavy selling.    Commodities Hedge funds were net buyers for a second week with demand concentrated in metals and agriculture while the energy sector saw continued selling. Overall the net long across 24 major commodity futures rose for a second week after recently hitting a two-year low. Buying was concentrated in gold, platinum, corn and livestock with crude oil and wheat being to most notable contracts seeing net selling. Energy: Speculators responded to continued crude oil weakness by cutting bullish bets in WTI and Brent crude by a combined 14% to a pre-Covid low at 304.5k lots. The reductions were primarily driven by long liquidation in both contracts following a demand fear driven breakdown in prices. Gas oil and gasoline longs were also reduced. Metals: Buying of metals extended to a second week led by gold which saw a 90% jump in the net long to 58.2k lots. Overall, net short positions were maintained in silver, platinum and copper with the latter seing a small amount of fresh selling due to profit taking on recently established longs. Agriculture: Grains were mixed with corn and soybeans seeing continued buying ahead of Friday's WASDE  report while the CBOT corn net short jumped 36% to 20k lotsand the Kansas net long was cut to a two-year low. The total grain long rose for second week having stabilised around 300k lots having collapse from a near record 800k lot on April 22.Soft commodities saw elevated short positions in sugar and cocoa being maintained with price gains in coffee and not least cotton supporting a small increase in their respective net longs. This before Friday's surge in cotton which left it up 13% on the week after the US Department of Agriculture slashed the US crop forecast by 19% to a 12-year low. Driven by a high level of abandonment of fields in the drought-stricken Southwest.      Forex In the week to August 9 when the dollar traded close to unchanged against a basket of major currencies, speculators increased to three the number of weeks of continued dollar selling. The pace of selling even accelerated to the highest since January after the gross long against ten IMM futures and the Dollar Index was slashed by 20% to $17.4 billion, a nine week low. Most notable selling of the greenback was seen against GBP and JPY followed by EUR and CHF. The Japanese yen, under pressure for months as yield differentials to the dollar widened saw its net short being cut by 22% to a 17-month low.     What is the Commitments of Traders report? The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class. Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and otherFinancials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and otherForex: A broad breakdown between commercial and non-commercial (speculators) The reasons why we focus primarily on the behavior of the highlighted groups are: They are likely to have tight stops and no underlying exposure that is being hedged This makes them most reactive to changes in fundamental or technical price developments It provides views about major trends but also helps to decipher when a reversal is looming  Source: COT: Speculators cut oil long to pre-covid low
Commodities: Prices Are Rising, Heatwaves In US And China Affects The Production Of Cotton

Commodities: Prices Are Rising, Heatwaves In US And China Affect The Production Of Cotton

Ole Hansen Ole Hansen 12.08.2022 16:00
Summary:  The correction that for some commodities already started back in March has since the end of July increasingly been showing signs of reversing, driven by recent economic data strength, dollar weakness and signs inflation may have peaked. With the broad position adjustments having run their course, the focus has returned to supply which in many cases remains tight, thereby providing renewed support, especially across the sectors of energy and key agriculture commodities. The correction that for some commodities already started back in March has since the end of July increasingly been showing signs of reversing. According to the Bloomberg commodity sector indices, the correction period triggered peak to bottom moves of 41% in industrial metals, 31% in grains and 27% in energy. The main reason for the dramatic correction following a record run of strong gains was the change in focus from tight supply to worries about demand. Apart from China’s slowing growth outlook due to its zero-Covid policy and housing market crisis hitting industrial metals, the most important driver has been the way in which central banks around the world have been stepping up efforts to curb runaway inflation by forcing down economic activity through aggressively tightening monetary conditions. This process is ongoing but recent economic data strength, dollar weakness and signs inflation may have peaked have all helped support markets that have gone through weeks and in some cases months of sharp price declines, and with that an aggressive amount of long liquidation from financial traders as well as selling from macro-focused funds looking for a hedge against an economic downturn.With the broad position adjustments having run their course, the focus has returned to supply which in many cases remains tight, thereby providing renewed support and problems for those who have been selling markets looking for even lower prices in anticipation of recession and lower demand. Backwardation remains elevated despite growth worries The behaviour of spot commodity prices, as seen through first month futures contracts, rarely gives us the full fundamental picture with the price action often being dictated by technical price-driven speculators and funds focusing on macroeconomic developments, as opposed to the individual fundamental situation. The result of this has been a period of aggressive selling on a combination of bullish bets being scaled back but also increased selling from funds looking to hedge an economic slowdown.An economic slowdown, or in a worst-case scenario a recession, would normally trigger a surplus of raw materials as demand falters and production is slow to respond to a downturn in demand. However, during the past three months of selling, the cost of commodities for immediate delivery has maintained a healthy premium above prices for later deliveries. The chart below shows the spread measured in percent between the first futures and the 12-month forward futures contract, and while the tightness has eased a bit, we are still seeing tightness across a majority, especially within energy and agriculture. A sign that the market has sold off on expectations more than reality, and it raises the prospect of a strong recovery once the growth outlook stabilises. Crude oil The downward trending price action in WTI and Brent for the past couple of months is showing signs of reversing on a combination of the market reassessing the demand outlook amid continued worries about supply and who will and can meet demand going forward. The recovery from below $95 in Brent and $90 in WTI this week was supported by signs of softer US inflation reducing the potential peak in the Fed fund rates, thereby improving the growth outlook. In addition, the weaker dollar and improving demand, especially in the US where gasoline prices at the pumps have fallen below $4 per gallon for the first time since March.In addition, the International Energy Agency (IEA) lifted its global consumption estimate by 380 kb/d, saying soaring gas prices amid strong demand for electricity is driving utilities to switch from expensive gas to fuel-based products. Meanwhile, OPEC may struggle to raise output in the coming months due to limited spare capacity. While pockets of demand weakness have emerged in recent months, we do not expect these to materially impact on our overall price-supportive outlook. Supply-side uncertainties remain too elevated to ignore, not least considering the soon-to-expire releases of crude oil from US Strategic Reserves and the EU embargo of Russian oil fast approaching. With this in mind, we maintain our $95 to $115 range forecast for the third quarter. Gold (XAUUSD) The recently under siege yellow metal was heading for a fourth weekly gain, supported by a weaker dollar after the lower-than-expected US CPI and PPI data helped reduce expectations for how high the Fed will allow rates to run. However, rising risk appetite as seen through surging stocks and bond yields trading higher on the week have so far prevented the yellow metal from making a decisive challenge at key resistance above $1800/oz, and the recent decline in ETF holdings and low open interest in COMEX futures points to a market that is looking for a fresh and decisive trigger. We believe the markets newfound optimism about the extent to which inflation can successfully be brought under control remains too optimistic and together with several geopolitical worries, we see no reason to exit our long-held bullish view on gold as a hedge and diversifier. Gold has found some support at the 50-day moving average line at $1783, and needs to hold $1760 in order to avoid a fresh round of long liquidation the short-term. While some resistance is located just above $1800 gold needs a decisive break above $1829 in order to trigger the momentum needed to attract fresh buying in ETFs and managed money accounts in futures. Source: Saxo Group Industrial metals (Copper)   Copper has rebounded around 18% since hitting a 20-month low last month, thereby supporting a general recovery across industrial metals, the hardest hit sector during the recent correction. Supported by a softer dollar, data showing the US economy remains robust, easing concerns about the demand outlook in China and not least disruptions to producers in Asia, Europe as well as South America potentially curtailing supply at a time when exchange-monitored inventories remain at a decade low. All developments that have forced speculators to cut back recently established short positions.The potential for an improved demand outlook in China and BHP's recent announcement that it has made an offer for OZ Minerals and its nickel and copper-focused assets, is the latest in a series of global acquisitions aimed at shoring up supplies of essential metals for the energy transition. With its high electrical conductivity, copper supports all the electronics we use, from smartphones to medical equipment. It already underpins our existing electricity systems, and it is crucial to the electrification process needed over the coming years in order to reduce demand for energy derived from fossil fuels.Following a temporary recovery in the price of copper around the beginning of June when China began easing lockdown restrictions, the rally quickly ran out of steam and copper went on to tumble below key support before eventually stabilizing after finding support at $3.14/lb., the 61.8% retracement of the 2020 to 2022 rally. Since then, the price has recovered strongly but may temporarily pause after reaching finding resistance in the $3.70/lb area. We maintain a long-term bullish view on copper and prefer buying weakness instead of selling into strength. Source: Saxo Group The grains sector traded at a five-week high ahead of Friday’s supply and demand report from the US Department of Agriculture. The Bloomberg Grains Index continues to recover following its 28% June to July correction with gains this past week being led by wheat and corn in response to a weaker dollar and not least hot and dry weather in the US and another heatwave in Europe raising concerns about yield and production. Hot and dry weather at a critical stage for yield developments ahead of the soon-to-be-harvested crop has given the World Agricultural Supply and Demand Estimates report some additional attention with surveys pointing to price support with the prospect of lower yields lowering expectations for the level of available stocks ahead of the coming winter. Cotton, up 8% this month has seen the focus switch from growth and demand worries, especially in China, to deepening global supply concerns as heatwaves in the US and China hurt production prospects. Friday’s monthly supply and demand report (WASDE) from the US Department of Agriculture was expected to show lower US production driving down ending stocks by around 10% to 2.2 m bales, an 11-year low. Arabica coffee, in a downtrend since February, has also seen a steady rise since bouncing from key support below $2/lb last month. A persistent and underlying support from South American production worries has reasserted itself during the past few weeks as the current on-season crop potentially being the lowest since 2014. Brazil’s drought and cold curbed flowering last season and severe frosts in July 2021 led farmers to cut down coffee trees at a time of high costs for agricultural inputs, notably fertilizer. In addition, Columbia another top producer, has seen its crop being reduced by too much rainfall. Source: WCU: Commodity correction may have exhausted itself
Coffee: Brazil And Columbia Are Reducing The Production

Coffee: Brazil And Columbia Are Reducing The Production

Ole Hansen Ole Hansen 11.08.2022 09:07
Summary:  Arabica coffee, in a downtrend since February, continues to see a tug of war between traders focusing on demand worries and those looking for higher prices in response to increasingly supportive supply fundamentals. In this update we take a closer look at some those supportive fundamentals while deciphering the potential signals being presented by the current price action. Arabica coffee has spent the past six months drifting lower after reaching an 11-year high back in February. In the months leading up to the peak at $2.60 per pound, the price had more than doubled with adverse weather in Brazil raising concerns about production. In the months that followed, however, the focus switched to the risk of a global economic slowdown, and with that the prospect of softer demand for the more expensive high quality bean.  After finding support at a key level below $2/lb the December futures has risen steadily in recent days with the situation in Brazil once again attracting some attention. This recent article from Bloomberg, titled “World’s Top Coffee Crop Shrinks in a Market Thirsty for Supply” confirms months of worries about supply with Brazil’s Conab now expecting the current on-season crop to be the lowest since 2014. Even their estimate of 35.7 million 60 kilogram bags, may end up being too optimistic according to commentators.  As Bloomberg reports: “Brazil’s drought and cold curbed flowering last season and severe frosts in July 2021 led farmers to cut down coffee trees at a time of high costs for agricultural inputs, notably fertilizer”. In addition, Columbia another top producer has seen its crop being reduced by too much rainfall.               Source: Saxo Group While an economic downturn may negatively impact demand for the more expensive bean, compared with Robusta, key fundamentals paint an overriding bullish picture for Arabica. The futures curve is currently pricing in the highest level of tightness since 2010 with the one-year backwardation, or roll yield achieved by holding a long position for one year, having risen despite recent attempts to sell it down. In addition, stock levels at warehouses monitored by the ICE futures exchange has declined to a 23-year low while speculators have cut their net long by 70% since February.  All developments that may underpin the price over the coming months, but first as per the chart below the price action needs to become more assertive. The first month contract has been trading within a wide declining channel since February, however, after finding support at $1.96/lb the important 38.2% retracement of the 2020 to 2022 rally, the potential for a test of the upper falling trendline, currently at $2.30/lb has risen. First though it needs to break above the 50-day moving average, currently at $2.21/lb. If rejected the medium term downtrend would likely resume with focus on a downward extension towards $1.75/lb. Source: Saxo Group Robusta, the cheaper coffee variety traded in dollars per metric tons may potentially show the way. After also finding support at the 38.2% retracement of the 2020 to 2022 rally it has done better than Arabica by breaking higher through its falling wedge like pattern. A daily close above $2160/tons is needed for confirmation of a bullish reversal that could send prices higher towards the previous peak around $2450/tons.  Source: Saxo Group Source: Supply pinch tilts risk higher for coffee  
Poland: Manufacturing PMI (Purchasing Managers' Index) Decreased

Commodities And Forex: Risk Got Back In The Game As Fed Signalised Possible Slowing Of Hiking

Ole Hansen Ole Hansen 08.08.2022 15:02
Summary:  Our weekly Commitment of Traders update highlights future positions and changes made by hedge funds and other speculators across commodities and forex during the week to August 2. A week that saw a strong recovery in risk appetite following the dovish US rate hike which helped send bond yields and the dollar lower, thereby supporting a recovery in recent under-pressure metals, both precious and industrial. Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial. Link to latest report This summary highlights futures positions and changes made by hedge funds across commodities and forex during the week to August 3. A week that saw a strong recovery in risk appetite following the dovish FOMC 0.75% rate hike on July 27 when Fed Chair Powell signaled the  Fed could slow the pace of rate hikes. A comment he may regret after Friday’s strong US job report forced a reprising of future rate hikes with another 0.75% back on the table next month. The reporting week also saw bond yields trade softer while the dollar index lost close to one percent.  Commodities Speculators in commodities reacted very mixed to the mentioned developments with strong gains in metals, both precious and industrials being more than offset by losses in energy and agriculture commodities, most notably natural gas, gas oil, wheat, and sugar.  Overall, the Bloomberg Commodity index traded softer by 0.6% with speculators showing no firm conviction after increasing bullish bets across the 24 major commodity futures tracked in this by 1% to 853k, a small recovery from the two-year low recorded the previous week. Biggest reductions seen in crude oil, natural gas and sugar with net buying concentrated in metals, soybeans, and corn. Energy: The recent weakness in crude oil prices and refinery margins in response to signs of softening demand helped drive an overall 29k contracts reduction in bullish crude oil bets to 353k lots, the second lowest level since April 2020. The reduction was primarily driven by speculators exiting gross WTI longs amid a continued release of oil from strategic reserves and weekly data pointing to a softening in gasoline demand. Metals: Weeks of heavy precious metal selling reversed last week after the sector, led by silver, staged a strong comeback following the dovish US rate hike which led to speculation the FOMC could potential start cutting rates next year. Gold’s 3.1% rally supported a reversal in the net position from a rare net short, the first since April 2019, to a small net long of 28k contracts. The continued recovery in copper after it recently found support at the key $3.15 level helped support a near 9% rally in silver and a 52% reduction in the net short to 8.4k contracts.   Agriculture: Having cut bullish bets across six major grains and soy contracts by 64% since the near record peak at 813k lots in mid-April, speculators showed signs of renewed interest last week. The net longs in corn and the soy complex rose for the first time in 11 weeks on a combination of fresh longs and gross short positions being reduced. Wheat continued to see net selling with the net short in CBOT wheat jumping by 44%, this following the opening of Ukraine export corridor.  All four softs contract were sold and following weeks of net selling, the sugar position finally flipped to a net short for the first time in 25 months, thereby potentially setting the stage for a recovery. Coffee and cotton remained firmly out of favor as well with net longs dropping to 15 and 24-month lows, respectively.  Forex   Speculators cut bullish dollar bets against ten IMM futures and the Dollar Index by 7% to $21.9 billion in the week to August 2, a week that saw risk appetite improve following the dovish rate hike from the US Federal Reserve. The change was led by strong buying of JPY with the net short reduced by 30% to a 14-month low at -42.7k lots on a combination of fresh buying and short covering. Net buying also seen in EUR, CAD, NZD and MXN with selling concentrated in AUD, CHF and GBP. What is the Commitments of Traders report? The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class. Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and otherFinancials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and otherForex: A broad breakdown between commercial and non-commercial (speculators) The reasons why we focus primarily on the behavior of the highlighted groups are: They are likely to have tight stops and no underlying exposure that is being hedged This makes them most reactive to changes in fundamental or technical price developments It provides views about major trends but also helps to decipher when a reversal is looming Source: COT: Speculators take a fresh look at metals and grains after exodus | Saxo Group (home.saxo)
COT: Commodity selling pressures showing signs of easing

COT: Commodity selling pressures showing signs of easing

Ole Hansen Ole Hansen 18.07.2022 16:24
Summary:  Our weekly Commitment of Traders update highlights future positions and changes made by hedge funds and other speculators across commodities and forex during the week to July 12. A week where financial markets nervously awaited the US CPI print on July 13 and with that a guide for the pace of future rate hikes. Commodities' steadied following the recent slump with continued losses in metals and softs being offset by gains in energy, primarily natural gas, and grains. Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial. Link to latest report This summary highlights futures positions and changes made by hedge funds across commodities and forex during the week to July 12. A week where financial markets nervously awaited the US CPI print on July 13 and with that a guide for the pace of future rate hikes. The S&P 500 and Nasdaq traded a tad softer with focus on corporate earnings and the inflation report, the latter driving US treasury yields higher while the dollar rose by 1.2% against a basket of major currencies. Commodities' steadied following the recent slump with continued losses in metals and softs being offset by gains in energy, primarily natural gas, and grains.    Commodities The exodus out of commodities which gathered pace following the early June US CPI shock and subsequent 0.75% rate hike from the FOMC, finally started to show signs of easing. The Bloomberg Commodity spot index traded flat during the reporting week with continued losses in metals, both industrial and precious, as well as softs led by coffee and cotton being offset by gains in energy (natural gas) and grains. Responding to these developments speculators and hedge funds selling showed signs of slowing. The net long across the 24 major commodity futures tracked in this dropped to 900,000 contracts, the lowest since June 2020 but the 52k contracts of reduction was well below the 190k average seen during the previous four weeks. Speculators turned net buyers of crude oil, copper and sugar with selling concentrated in natural gas, soybeans, corn, wheat and coffee. The gross position i.e., the combined long and short was cut by 177k contracts, reflecting a continued high degree of uncertainty and the vacation season lowering the general level of risk appetite. Energy Speculators turned net buyers of crude oil for the first time in five weeks with short covering emerging after Brent and WTI both slumped below $100 on growth and demand fears. Following four weeks of selling, which reduced the net long by 170k contracts to 344k contracts, lowest since March 2020, the net long rose by 11k contracts with selling of Brent (3.4k) being more than offset by fresh demand for WTI (+14.3k). Latest market developments: WTI and Brent crude oil futures trade higher after President Biden, as expected, left the Middle East with no promise of additional barrels to help suppress record high US gasoline prices. Instead, Saudi ministers said that oil policy decisions will be taken based on market moves and within the framework of the OPEC+. According to the current OPEC+ agreement, the four Gulf countries and OPEC members that participated in the meeting can boost production by around 1 million barrels per day by the end of next month. Libya meanwhile has said plans to restart all its oil exports and production as a recent blockade looks set to be lifted. Gasoline prices have eased recently on a combination of lower oil prices and lower refinery margins (crack spreads). The same goes for diesel although last week saw the crack spreads move higher again, highlighting a continued tightness.   Gold, silver, platinum and copper Speculators exodus from Invesment and semi-precious metals continued at a rapid pace last week, resulting in the biggest net short since May 2019. The gold net long was cut by 24k contracts close to neutral at 3k, the lowest level of investor participation on the long side since March 2019. Silver and platinum both saw additional selling with their respective short positions both rising to levels not seen since June 2019. Copper stood out with short covering, despite continued price weakness, reducing the net short by 31% to 18.3k contracts. Latest market developments: Gold has bounced back after twice finding support in the $1700-area last week, supported by profit taking on long dollar positions ahead of Thursday’s ECB meeting which is expected to yield the first-rate hike since 2011. Easing selling pressure from speculators also expected after 24k lots selling in the week to July 12 brought the net back to neutral. Increased short positions in silver and platinum also reflecting the latest onslaught with a change in the technical and or fundamental outlook potentially supporting a rebound on short covering. HG copper found support at $3.15/lb last week, a key level representing a 61.8% retracement of the 2020 to 2022 rally. The recovery seen this Monday has been driven by support from Chinese authorities, a weaker dollar and a market generally oversold. For this to become more than a bear-market bounce the price as a minimum need to retrace back above $3.68/lb. Agriculture Weeks of heavy selling have reduced the total net long across 13 major agriculture futures to a near two-year low at 498k contracts split between grains (344k), softs (102k) and livestock (52k). Last week speculators, despite higher prices, continued to cut their exposure in grains and soybeans. The 58% reduction from a 10-year high above 800k contracts reached just three months ago has been a major driver behind the 28% price slump in the Bloomberg Grains index during this period. While the bulk of the reduction has been driven by corn, the market has in addition turned net short CBOT wheat for the first time since February, thereby removing Ukraine war premium.  Soft commodities were mixed with buyers returning to sugar for the first time in seven weeks while cotton’s recent slump on the outlook for lower demand for fibers, especially in China, saw the net long being cut to a 13-month low. The Arabica coffee long saw a 29% reduction in response to a 7% price drop as speculators betting on tight Brazil supply started to surrender longs on a challenging global demand outlook. Forex Speculators increased their bullish dollar bets against nine IMM futures contracts and the Dollar index by a modest 7% to $21.3 billion. This during a week where the greenback reached multi-decade highs against the yen and the euro, with the latter reaching parity. The selling of the euro took to the net short to a 28-month high at 25.2k contracts. What is the Commitments of Traders report? The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class. Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and otherFinancials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and otherForex: A broad breakdown between commercial and non-commercial (speculators) The reasons why we focus primarily on the behavior of the highlighted groups are: They are likely to have tight stops and no underlying exposure that is being hedged This makes them most reactive to changes in fundamental or technical price developments It provides views about major trends but also helps to decipher when a reversal is looming Source: COT: Commodity selling pressures showing signs of easing | Saxo Group (home.saxo)
Recession Fears Continue To Rattle the Commodity Markets - Brent Crude Oil, Silver Futures Touch 4-week lows, Corn Futures Reach 6-week Highs.

Are There Food Crisis Worries? What Made Soft Commodities Rise? What Affected Silver Price?

Ole Hansen Ole Hansen 06.07.2022 13:20
Summary:  We maintain our long-held view that the basis - and from a global growth perspective, the unfortunate risk - for a long-lasting cycle of rising commodity prices has not gone away. We maintain our long-held view that the basis—and from a global growth perspective, the unfortunate risk—for a long-lasting cycle of rising commodity prices has not gone away. However, faced with the highest level of inflation in decades and with central banks stepping on the brakes through aggressive rate hikes, the everything rally seen in recent quarters has become more uneven, as its strength is driven by commodities in short supply.  The Bloomberg Commodity Spot Index reached a fresh record high during the second quarter before entering a phase of consolidation, as global growth concerns received an increased amount of attention. The following key developments will help set the tone during the second half of the year: 1) Russia’s willingness to stop the war, thereby beginning the long road to normalizing commodity supply chains, 2) China’s slowing economic growth versus its ability to stimulate the world’s biggest commodity-consuming economy, 3) The strength and speed of US rate hikes and their impact on inflation and growth, and 4) whether prices, especially across the energy sector, have reached levels that will see demand destruction and a more balanced market.  However, while demand destruction through high prices and lower growth through rapid rising interest rates may help pause the rally, the long-term challenge to supply remains. Supply is being driven by factors that are not easy to fix, such as 1) historical bad returns on commodity investments, 2) a high level of volatility that makes it difficult to project future revenues and 3) environmental, social and governance (ESG) legislation that has increasingly prevented old-economy companies within mining and energy production to attract investors and get the necessary approvals from local authorities.  During  the  past  quarter,  the  energy  and  industrial  metal  sectors  went  in  the  opposite  directions. Led by surging fuel product prices, the energy  sector rallied  strongly,  driven  by  some  of  the  above-mentioned  reasons,  most  pressingly  the  inability  of  producers  to  raise  production to meet a pre-Covid recovery in global demand from China, and more recently the sanctions against Russia. At the other end of the scale, the industrial metal sector struggled due to global growth concerns and the prolonged lockdowns in China reducing activity in the world’s biggest consumer of commodities. Agriculture: The risk and worry about a global food crisis have not gone away. As we move deeper into the Northern Hemisphere growing seasons, some production worries have faded, but are not completely gone. The rally in food commodities were initially led by wheat and edible  oils,  two  food  categories  that  are  very  dependent on supplies from war-torn Ukraine. With millions of tons of grains still stuck in silos just weeks before the next harvest will require the storage space, the outlook for food prices will depend on the level of crop-friendly weather around the world and whether a corridor allowing exports of Ukraine crops will be established.  Precious and semi-precious metals: Gold, silver and platinum all struggled during the second quarter as the dollar rose and US treasury yields surged higher at a historic pace, while the outlook for industrial demand was being challenged by an emerging slowdown in global growth. This hurt  silver, which suffered the biggest setback. Gold  traders  have  in  recent  quarters  been  focusing  on  rising US  10-year  real  yields as an important negative driver for gold. However, so far this year, that inverse correlation has increasingly been challenged. The 1.8 percent real yield jump since the beginning of the year would indicate gold trading to be more than 300 dollars too expensive. Instead, gold trades close to unchanged on the year, a feat made even more impressive considering the dollar trading at multi-year highs against several major currencies. We believe that hedges in gold against the rising risk of stagflation—central banks kill growth before getting inflation under control—together with traders responding to the highest level of inflation in 40 years, as well as turmoil in stocks and cryptos, are some of the reasons why gold has not fallen at the pace dictated by rising real yields. With that in mind, we are watching what investors do, not what they are saying, through the exchange-traded fund (ETF) flows.  We maintain a bullish outlook for gold, considering the risk of continued turmoil in global financial markets as the transition towards a higher interest rate environment takes its toll on companies and individuals. We stick to our forecast in Q2 that gold—and silver—following a period of consolidation in the second quarter will move higher during the second half, with gold eventually reaching a fresh record high.  Industrial metals: This sector suffered a major correction during the second quarter, mostly due to China’s increasingly fraught zero-Covid tolerance policy, which has negatively impacted the outlook for growth in the world’s largest commodity-consuming economy. In addition, the outlook for global growth remains uncertain given the need for higher interest rates to combat inflation. Developments increasingly have turned investors' attention towards challenging demand and away from a supply outlook that for several metals look equally challenging.  While the energy transformation towards a less carbon-intensive future is expected to generate strong and rising demand for many key metals, the outlook for China is currently the major unknown, especially for copper where a sizable portion of Chinese demand relates to the property sector. But considering a relatively weak pipeline of new mining supply beyond 2024, we believe the current macro headwinds from China’s property slowdown will moderate throughout 2022. We also need to consider that the People’s Bank of China (PBOC) and the government, as opposed to the US Federal Reserve, are likely to stimulate the economy, with a special focus on green transformation initiatives that will require industrial metals. Copper, rangebound for more than a year, broke lower in June in response to prolonged lockdowns in China and investors increasingly worried about recession. With this in mind,  we  are  neutral  heading  into  the  third  quarter, meaning that existing exposure to the sector should be maintained but not added to until  the  price  action  either  signals  renewed  upside,  potentially  on  a  break  back  above  $4.05 or alternatively around $3.5 on additional weakness.Energy: The combination of sanctions against Russia, Europe’s attempt to wean itself off Russian energy and many Organization of the Petroleum Exporting Countries (OPEC) producers pumping at a pace close to capacity are major developments keeping the energy sector supported. Adding the impact of years of underinvestment in both upstream and downstream capital expenditure, there is little refining spare capacity globally to meet the dual challenge of sanctions reducing Russian flows and a post-Covid recovery in demand.  Inelastic supply and robust demand, despite the risk of an economic slowdown, has led the International Energy Agency (IEA) to warn about a rising supply deficit into 2023. The lack of refinery capacity, made worse by closures during the Covid pandemic, has moved the crisis from crude oil—which remains well below the 2008 record at $145/bbl—to the refined fuel market where gasoline and diesel have already reached record levels.  Oil majors swamped with cash, and investors in general, showing little appetite for investing in new discoveries is the long-term reason for the cost of energy likely remaining elevated for years to come. Besides the already mentioned challenges of high volatility and historically bad returns on investments, the immediate challenge relates to future expectations for demand.  The green transformation which is receiving increased and urgent attention will eventually begin to lower global demand for fossil fuels. It’s the timing for this transition that keeps the investment appetite low. Unlike  new  drilling  methods  like  fracking  where  a  well  can  be  productive within months, traditional oil production projects often take years and billion-dollar investments before production can begin. In other words, oil producers are not looking at a very appealing spot price for crude above $110/bbl, but rather at where the market will price oil in the future.  The following chart shows the forward curves for Brent and West Texas Intermediate (WTI) crude oil, and the dilemma producers face five years out with both crude varieties trading more than $40 below current spot prices. These prices project a market with falling demand and with that, an even greater uncertainty about the long-term profitability of new projects.   With these considerations in mind, we suspect corrections in the energy market during the second quarter may end up being short-lived, with the risk of a prolonged period of high prices the most likely outcome. A brief return to the 2008 record high cannot be ruled out, but in general we believe that some emerging demand weakness on the other side of the peak summer demand season should keep prices capped within a wide $105-to-$130 range. Explore commodities at Saxo Source: Understanding the lack of investment appetite among oil majors – Outlook Q3 | Saxo Group (home.saxo)
Russian-Ukrainian War And China-COVID Reality Are Factors, Which, Among Others, Influenced View On Commodities

Russian-Ukrainian War And China-COVID Reality Are Factors, Which, Among Others, Influenced View On Commodities

Ole Hansen Ole Hansen 01.07.2022 15:26
Summary:  The month-long commodity rally hit a major obstacle during the latter part of June as the risk of recession continued to take hold in people’s minds. Selling driven by the need to cut exposure ahead of the summer holiday period across several major trading hubs and macro-orientated funds who bought the rally but now are having second thoughts as the risk of an economic slowdown looms ever larger. In the crosshairs of the weakness we find copper and cotton, two recession sensitive commodities from different sector. The month-long commodity rally hit a major obstacle during the latter part of June as the risk of recession continued to take hold in people’s minds. With the war in Ukraine, China still struggling to find a growth gear amid its controversial zero tolerance approach to Covid outbreaks and the wider world, led by the US responding to the negative impact galloping inflation has on consumers’ propensity to spend, the outlook has indeed worsened.During the past month, the Bloomberg Commodity Index has given back 12%, thereby in month giving back close to half the gains the sector had delivered since last December. As per the table below, steep declines have been seen across all three sectors of energy, primarily due to natural gas, metals, and agriculture. At this point, the level of potential demand destruction remains very unclear. However, there is no doubt that some of the recent froth is currently being taken out of the market. This is partly driven by macro-orientated funds who bought the rally but now are having second thoughts as the risk of an economic slowdown looms ever larger. What happened in June that would justify such a major short or even medium-term reversal of the markets? It all began with the higher-than-expected US inflation print on 10 June leading to the first 75 basis point rate hike in decades. With several additional rate hikes to follow, the market has increasingly started to worry that central banks around the world will continue to raise rates. This will be either until inflation is brought under control or something breaks – the latter being the risk of economies buckling under pressure with recession the consequence. For now, at least one element of inflation, i.e., rising input costs through elevated commodity prices, has started to retreat, thereby supporting a 1.1% drop in two-year forward inflation expectations to 3.6% during the past two weeks alone. A spate of weaker-than-expected economic data from US and signs consumers have started to scale back consumption has resulted in the Atlanta Fed GDPnow model tracking an economic contraction of 1.0% in Q2, which would imply a US “technical” recession of two consecutive quarters of negative real GDP growth. Still, we do not think that the US is heading into a broad-based recession, even as the Fed will likely continue to chase inflation.Natural gas:The two major performance outliers this past month are natural gas in the US and Europe. Stateside, the Henry Hub natural gas contract has slumped by 34% to $5.7/MMBtu as the prolonged shutdown of the Freeport LNG export terminal keeps more gas at home, thereby supporting a faster-than-expected inventory build ahead of the winter peak demand season. The latest twist came after a federal agency said the terminal, accounting for around 20% of US exports, can't restart without written permission from the Biden administration. Last week, some 82 bcf (billion cubic feet) of gas was injected into underground caverns against expectations of 75 bcf. Reduced US export capabilities could not have come at a worse time for Europe where reduced flows on the NordSteam 1 pipeline to Europe has further uprooted the market and driven prices to a demand destructive territory just below €150/MWh ($46.5/MMBtu), around a ten-fold higher price than seen in the run up to last year’s surge. The economic impact on European utilities not receiving the gas they bought under long-term contracts with Gazprom at much lower prices is currently being felt the hardest in Germany, a country whose failed strategy to depend almost exclusively on Russian gas has left many high energy consuming industries exposed.This past week Uniper, a major energy company, was the first to ask for state help after receiving only 40% of the contractual agreed gas volumes from Gazprom since June 16. In order to make up the shortfall they are forced to buy the gas in the spot market at the mentioned very high levels. With the cost on winter gas already trading close to €150/MWh and with storage injections slowing, only an aggressive reduction in demand, either through voluntary or government intervention will prevent the risk of blackouts this winter.Crude oil:Crude oil and fuel products remain rangebound and after recording their first, albeit small, monthly loss since last November, and some questions are being raised about the sector’s ability to withstand additional recession-focused selling. We still believe – and fear – that worries about demand destruction will be more than offset by supply constraints. OPEC+ met this week and agreed another small production hike at a time where the group is already trailing their own production target by 2.7 million barrels per day. Having completed the reversal of output cuts made at the start of the pandemic in 2020, the market will focus on what lies ahead, but with most producers being close to maxed out, we are unlikely to see a surprise additional supply response. The weekly inventory report from the US Energy Information Administration showed US crude stockpiles, despite massive injections from Strategic Petroleum Reserves (SPR), falling to their lowest seasonal level since 2014 while stocks at Cushing, the important delivery hub for WTI crude oil futures dropped to 21.3 million barrels, are also the lowest since 2014. The negative market impact, however, came from finished motor gasoline supplied data which showed that US demand for gasoline is succumbing in a more substantial way to record-high gasoline prices after showing a counter-seasonal decline. In the short term, we will see a battle between macroeconomic focused traders selling “paper” oil through futures and other financial products as a hedge against recession, and the physical market where price supportive tightness remains. A battle that for now and during the upcoming peak summer holiday period when liquidity dries out may see Brent crude oil trade within the established range between $100 and $125.Gold and silverGold traded below $1800 for the first time in six weeks with focus now on key support around $1780. The weakness being driven by a combination of a stronger dollar, the market pricing in lower forward inflation driven by rate hikes, recession worries reducing the overall appetite for commodity exposure, and after India, the world’s number 2 consumer, increased import taxes. In addition, silver has slumped below $20, dragged lower by continued weakness across industrial metals, especially copper. Faced with these multiple headwinds, investors are reducing their exposure in ETFs while speculators are adding short positions through futures. Reasons for holding gold, such as the hedge against stagflation, geopolitical and financial market risks, have not gone away, but for now with the summer holiday and low liquidity season upon us, investors are scaling back more than gearing up. Source: Saxo Group Copper and cotton crushedBehind the mentioned big drop in US natural gas we find copper and cotton as the biggest losers in June. These two commodities from a different sectors are often used as barometers of the health of the global economy. The level of demand for copper given its use in electrical wiring and cotton in clothing are two key components that drive global growth, and with rising concerns about a global recession, both have been attacked by sellers, either getting out of long or into short positions as a hedge against further macroeconomic deterioration. While copper crashed below levels not seen since early 2021, cotton hit a nine-month low, some 32% below the May peak, with Covid-hit China seeing lower demand. Against these challenging demand developments, the outlook for supply also worsened after the percentage of US crops being rated good to excellent dropped to just 37% versus 52% a year ago.Once the dust settles, copper is likely to attract fresh demand, not least because China is showing fresh attempts to ease lockdowns while the level of available stocks held at warehouses monitored by the two major exchanges in London and Shanghai remain near the lowest in decades. Not a healthy starting point from any signs of a renewed pickup in demand.HG Copper extended its slump following the recent break below support at $3.95/lb with the focus now on the next key level of support at $3.50/lb. Source: Saxo Group Source: WCU: Copper and cotton crushed on galloping recession fears | Saxo Group (home.saxo)
Russia's Crude Oil Still Flows To Japan, Negative Trade Balance In Japan

Crude oil responds to signs of slowing US demand

Ole Hansen Ole Hansen 30.06.2022 14:00
Summary:  Crude oil remains rangebound on a continued battle between macroeconomic focused traders, selling “paper” oil through futures as a hedge against recession, and the physical market where price supportive tightness remains. In addition, however, the market has seen some early signs of demand destruction among US motorists after data on gasoline demand showed a surprise and counter seasonal drop last week. Crude oil remains rangebound but on track for its first, albeit small, monthly loss since last November. During the past month persistent supply concerns have increasingly been countered by a prolonged lockdown in China and not least emerging concerns that aggressive rate hikes by central banks around the world will eventually hurt growth and demand for key commodities such as fuel products.  Emerging demand concerns have already been the culprit behind the steep declines seen recently across industrial metals, most recently copper which trades down 13% on the month. The energy sector meanwhile has so far managed to avoid getting caught up in this correction phase due to an extraordinary tight supply outlook. Fortress crude oil however did come under some pressure yesterday amid signs of slowing US gasoline demand.  The weekly inventory report from the US Energy Information Administration showed US crude stockpiles, despite massive injections from Strategic Petroleum Reserves (SPR), falling to their lowest seasonal level since 2014 while stocks at Cushing, the important delivery hub for WTI crude oil futures dropped to 21.3 million barrels, also the lowest since 2014. The market impact, however, came from finished motor gasoline supplied data which showed that US demand for gasoline is succumbing in a more substantial way to record high gasoline prices.  Implied gasoline demand on a four-week rolling basis fell last week to 8.93 million barrels per day, the lowest seasonal level since 2014 except for the 2020 pandemic-led collapse. Gasoline demand from US motorists normally does not peak until the end of the summer driven season around early September and seeing a divergence this early in the season points to slowing demand. A development backed up by a recent survey saying American’s planning on taking a holiday by car in the next six months has dropped to the lowest seasonal level in four years. Record high refinery margins – or so-called crack spreads - which reflect the profitability of refining a barrel of crude oil into products such as gasoline and diesel responded to the report by coming lower. At current levels, they remain well above historical averages, a reflection of the continued tightness in the refined product market.  The fact crude oil futures only recorded a relatively and not unusual price reversal within the established ranges highlights the continued risk of higher prices due to persistent tightness, due to sanctions against Russian shipments and not least many producers struggling to increase production despite the prospect for high revenues at current prices.  We still believe – and fear – that worries about demand destruction will be more than offset by supply constraints. OPEC+ meet today, and already trailing their own production target by 2.7 million barrels per day, the group is expected to rubberstamp another small but illusive production increase, thereby completing the reversal of output cuts made at the start of the pandemic in 2020. What lies ahead for the group will be crucial, but with most producers being close to maxed out, we are unlikely to see a surprise additional supply response. In the short term, however, we will see a battle between macroeconomic focused traders, selling “paper” oil through futures and other financial products as a hedge against recession, and the physical market where price supportive tightness remains. A battle that for now and during the upcoming peak summer holiday period when liquidity dries out, may see Brent crude oil trade within the established range between $100 and $125 and perhaps the even tighter one between $110 and $120.  Source: Saxo Group Source: Crude oil responds to signs of slowing US demand | Saxo Group (home.saxo)
XAUUSD: A Technical Look At Gold Price

COT: Commodity specs jump ship on recession angst

Ole Hansen Ole Hansen 27.06.2022 14:30
Summary:  Our weekly Commitment of Traders update highlights future positions and changes made by hedge funds and other speculators across commodities and forex during the week to June 21. A week where central bank rate hikes and weak economic data helped drive the market focus towards the risk of recession, and with that worries about demand for key commodities. Developments that helped trigger long liquidation in energy and grains together with additional short selling in copper. Precious metals meanwhile attracted fresh buying after the dollar and bond yields both dropped Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial. Link to latest report This summary highlights futures positions and changes made by hedge funds across commodities and forex during the week to June 21. A week that followed the post-FOMC rate hike and weaker than expected economic data helped steer the market focus towards the looming risk of an economic slowdown, and in a worst-case recession. The result of these worries being a sharp reversal in US ten-year treasury yields and a weaker dollar both after hitting multi-year highs.  Worries about growth and with that demand for commodities helped trigger long liquidation in energy and grains together with additional short selling in copper. Precious metals meanwhile attracted buyers in response to the weakness mentioned in yields and the dollar.  CommoditiesThe commodity sector extended its decline during the reporting week with Bloomberg Commodity Spot index declining 2.1% with losses led by energy and the grain sectors.  Overall, the total net long across the 24 commodity futures tracked in this slipped 5% to a 22-month low at 1.5 million lots, with the biggest reductions seen in WTI crude oil, natural gas, grains and sugar. Note, the table below does not include delayed data from the ICE Europe Exchange on Brent and Gas oil. Energy: WTI crude oil sold off nearly 6% during the week to June 21 and in response Managed Money accounts liquidated 29k lots of net longs ($3.5 billion notional). It was the biggest week of long liquidation since last November and it reduced the net long to a 26-month low at 234k lots. Small reductions were seen in diesel and gasoline while the natural gas long across four Henry Hub deliverable futures and swap contracts slumped 44% to 19k lots, and lowest since March 2020.Metals: Gold and silver accounted for the bulk of the net buying across the commodity sector last week as recession worries helped boost prices. Aggressive selling the previous week was reversed with the gold net long rising 25% to 61.8k lots and silver 333% to 6k lots, both primarily driven by short covering. The HG copper net short more than doubled to 16k lots just before the price broke below $3.95 per pound, a key level that had been providing support for the past 15 months. Agriculture: The grains sector saw broad selling after the Bloomberg Grains Index dropped 5% to a four-month low. Net selling of all three major crops drove the combined long across the six contracts tracked in this down by 32k lots to 567k lots, a five-month low, and down 31% from the April peak. In softs, sugar selling extended to a fourth week with the net long declining by 20k to 116.5k lots. Cotton, a recession-shy contract, saw long liquidation after falling by 5.6%. In the days that followed last Tuesday the December contract lost another 15%, which undoubtedly would have hurt a market which for many weeks had a very elevated long-short ratio, most recently at 27 longs per each short. A situation that often triggers outsized reactions to a change in the prevailing trend, in this case given the lack of short positions to meet the pressure from longs trying to get out.    ForexBroad dollar weakness following the +3% jump the previous week slowed but did not stop continued speculative dollar accumulation in the week to June 21. Once again led by continued shorting of euros, albeit at a much slower pace than the record pace recorded in the previous week. In addition, long liquidation of recently established CAD longs helped offset small buying of NZD, AUD, GBP and not least JPY, the latter seeing short covering extend to a sixth week. Despite hitting a multi decade high speculators have become wary of the yen’s rapid demise and with bond yield spreads narrowing as recession fears sink yields elsewhere, the risk of further yen strength has so far led to a 47% reduction in the net short to 58k lots, a 15-week low.Overall, these changes saw the dollar long against ten IMM futures rise by 8% to $20.3 billion, a four-week high. What is the Commitments of Traders report? The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class. Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and otherFinancials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and otherForex: A broad breakdown between commercial and non-commercial (speculators) The reasons why we focus primarily on the behavior of the highlighted groups are: They are likely to have tight stops and no underlying exposure that is being hedged This makes them most reactive to changes in fundamental or technical price developments It provides views about major trends but also helps to decipher when a reversal is looming Source: COT: Commodity specs jump ship on recession angst | Saxo Group (home.saxo)
Less Precipitation Make Aluminium Smelters In Yunnan (China) Change Its Operating Rate

WCU: Recession fears drive steep commodity declines

Ole Hansen Ole Hansen 24.06.2022 15:22
Summary:  The commodity sector spooked by the recession ghost saw steep declines across all three sectors of energy, metals and agriculture this past week. At this point, the level of potential demand destruction remains unclear, but we doubt the eventual impact will be enough to unsettle the long-term reason commodities are in a cyclical bull run. In this update we take a closer look at crude oil, copper, gold and wheat. The commodity sector is increasingly being spooked by the recession ghost. This past week’s selling saw steep declines across all three sectors of energy, metals and agriculture. At this point, the level of potential demand destruction remains unclear. However, there is no doubt that some of the recent froth is currently being taken out of the market. This is partly driven by macro-orientated funds who bought the rally but now are having second thoughts as the risk of an economic slowdown looms ever larger.The current worries, however, will only manifest itself over the coming months and quarters. At this point, we doubt the eventual impact will be enough to unsettle the long-term reason commodities are in a cyclical bull run. Structural issues, such as doubts about the long-term investment appetite for new projects within energy exploration and mining, remain a key reason tightness will continue to be a price supportive issue over the coming years. Some of it led by the green transformation which is making the outlook for fossil-fuel based energy demand increasingly difficult to predict.Performances across key commodities since June 10, when a higher-than-expected US inflation print helped trigger an aggressive rate hike response from the US Federal Reserve, and with that also raising recession concerns. Note: EU TTF (Title Transfer Facility) and US gas being major outliers given ongoing and opposing pulls from Russian supply concerns in Europe and a prolonged reduction in US exports following the recent explosion at Freeport LNG’s export terminal in Texas. The unpredictability of future demand has recently been highlighted by several energy producers which are currently on the receiving end of critical comments from governments –  especially the Biden administration which is struggling to gain traction, amid record high fuel prices at the pumps, ahead of the midterm elections this autumn. In defence of not raising capital expenditure towards increased oil production and refinery capacity, most energy producers say that rising sales of electric vehicles is set to cut gasoline market share over the next several years, thereby reducing the appeal of new long-term drilling and refining projects.The month of June has indeed delivered a sharp turnaround across markets, starting with the higher-than-expected US inflation print on 10 June leading to the first 75 basis point rate hike in decades. With several additional rate hikes to follow, the market has increasingly started to worry that central banks around the world will continue to raise rates. This will be either until inflation is brought under control or something breaks – the latter being the risk of economies buckling under pressure with recession the consequence. For now, at least one element of inflation, i.e., rising input costs through elevated commodity prices, have started to retreat.During the past week, the focus on a recession accelerated as bond yields tumbled after Federal Reserve chair Powell, in a testimony to the US Senate, accepted that steep rate increases could trigger a US recession while making a soft economic landing “very challenging” to achieve. This was followed up by another batch of weak economic data from the US and Europe showing manufacturing and services activity cooling. In Europe, the yield on two-year German bonds tumbled the most since 2008, with the region looking increasingly at risk of a sharp slowdown as the cost of gas and power surged higher after Gazprom cut supplies to Germany.The mentioned worries about global growth helped push the Bloomberg Commodity Index to a four-month low this past week, with all sectors led by grains suffering setbacks. Since reaching a record peak on June 9, the index has fallen by around 12%, but remains up around 21% on the year with crude oil and fuel products having provided the bulk of those gains. As per the table above, weakness has emerged across all sectors since that day, with EU natural gas the only market being supported by the risk of shortages over the coming months.Crude oil showed signs of stabilizing on Friday following a near 15% top to bottom correction during the past ten days on increased concerns that aggressive rate hikes by central banks around the world will eventually hurt growth and, in turn, demand for key commodities from energy to industrial metals. Prices have dropped despite continued signs that the crude oil and the fuel product market remains very tight – the latter being highlighted through near record refinery margins, which would have come down if demand was easing. In the short term, we will see a battle between macroeconomic focused traders, selling “paper” oil through futures and other financial products as a hedge against recession, and the physical market where price supportive tightness remains.Copper was heading for its biggest weekly loss in a year as global recession fears increased and China’s lockdowns continued hurting growth and demand in the world’s biggest consumer of industrial metals. While the Bloomberg Industrial Metal Index trades down 6% on the year, copper is currently 15% under water – with around half of that loss realised this past week when Fed chair Powell reiterated his commitment to bring down inflation, thereby raising the risk of a hard landing. In addition, Codelco, a large mining company based in Chile, has reached an agreement with workers to end a strike that could have led to a price-supportive reduction in supply.Our long-held bullish view on copper and industrial metals have not changed, but rapid rising recession worries combined with China’s ongoing and prolonged struggle with Covid-19 outbreaks may delay the inevitable move towards a balanced market and eventually a market in short supply. In addition, we are seeing a continued disconnect between sharply lower prices and stock levels held at warehouses monitored by exchanges in London and Shanghai. This past week stocks of all the four major metals dropped to a fresh combined record low at 1.1 million tons, down 60% from a year ago.Having broken below $3.95 per pound, a level that has been providing support since early 2021, the next key level of support can be found at $3.50/lb, the 50% retracement of the 2020 to 2022 rally.   Source: Saxo Group Wheat, which together with edible oils, led the March surge in agriculture commodities after Russia's attack on Ukraine raised concerns about supplies from a key supplier of these two food items. After hitting a record high last month at $13.63 per bushel, the price of Chicago wheat has since seen emerging weakness which turned into a rout this past week after the break below key support open the floodgates for technical selling and long liquidation. Despite the prospect for a record Russian production and improved outlook in the US, the outlook points to a continued post-harvest tightness, not least considering drought and heatwaves in Europe and the unresolved issue of how to get Ukrainian seaborne crop exports restarted. Next week’s highlight, apart from weather developments, being a monthly update on crop acreages and inventories from the US Department of Agriculture. The December (new crop) Chicago wheat contract has seen accelerate selling after breaking support turned resistance at $10.50/bushel, the neckline of a head and shoulder formation that could indicate further short-term technical-driven weakness. Source: Saxo Group Precious metals: Gold remains rangebound within a wide range between $1780 and $1880, with the prospect of rapid interest rate hikes being offset by the worries about recession and, in a worst-case scenario, the risk of stagflation which historically has proven to be supportive for gold. However, with silver being pulled lower by sharply decreased industrial metals and some returning risk appetite across the stock market, gold ended up lower on the week as these developments more than offset the otherwise positive impact of US Treasury yields and the dollar trading softer.Our long-held bullish view on gold has been strengthened by developments these past few weeks, and we still see the potential for gold hitting a fresh record high during the second half of 2022 as growth slows and inflation continues to remain elevated. For now, however, calm needs to return to silver and other semi-industrial metals, like platinum, before investors will take another look. Source: WCU: Recession fears drive steep commodity declines | Saxo Group (home.saxo)
What Did Support GDP? | Should Eurozone Worry!? Energy Prices May Weaken Production

Finally, some good news as food prices ease

Ole Hansen Ole Hansen 21.06.2022 15:05
Summary:  Global food price inflation has since peaking in March shown signs of easing, and so far, this month we are seeing most major commodity futures trading lower. If sustained it will come as a welcome relief to consumers around the world, many experiencing hardship from the recent surge in cost-of-living expenses. The weakness has been led by wheat and edible oils; the two food categories impacted the most by Russia's war in Ukraine. However, given the continued tightness and worries about Ukraine, an extended decline seems unlikely until this season's production levels become clearer Global food price inflation, currently running at a near 23% on an annual basis according to the FAO, has since peaking in March showed signs of easing. The Global Food Price index compiled monthly by the UN organisation reached a record peak in March after Russia’s attack on Ukraine, a key global supplier of high-quality wheat and the biggest exporter of sunflower oil, helped turbocharge prices to levels raising concerns of a global food crisis. Since then, however, some of the worries have started to ease with palm oil prices suffering a steep decline on the prospect for increased supplies from Indonesia, a major producer who temporarily implemented export restrictions back in March. Winter wheat harvesting in Europe and North America meanwhile have eased some of the supply concerns triggered by lack of Black Sea shipments from Ukraine. The prospect of sharply lower prices, however, remains doubtful with weather worries still a key focus in countries like India and key growing regions in France. In addition, and important from a food security perspective next winter, negotiations to export Ukrainian grain through a protected corridor in the Black Sea has made little progress, and unless Ukraine can empty its silos before the next albeit much reduced harvest arrives, the prospect of lower-than-expected available supply will linger on. In order to gauge the level of tightness in each market, we often look at the 12-month spread between the spot futures contract and the one expiring one year into the future. The chart below shows very clearly how the agricultural market has changed during the past couple of years. During a six-year period from 2014 the agriculture market witnessed a period of ample supply driven by crop friendly weather and low input costs. During this time, the market was trading in contango meaning spot prices commanded the lowest price relative to deferred. This benign and calm period was suddenly disrupted in early 2020 when the pandemic led to a temporary breakdown in supply channels. In addition, the weather phenomena of colder than normal temperatures in the region of the equatorial Pacific Ocean, called La Ninã started to create challenging growing conditions, especially in South America, but also the USA and Australia. These price supportive developments were then turbocharged in early 2022 by surging cost of diesel and fertilizers and by Russia’s attack on Ukraine, a major global supplier of key food items from wheat and corn to sunflower oil. However, the easing conditions since the March peak has seen the CBOT wheat one-year spread from a near 15% backwardation to a small contango. In Europe however, the one year spread in Paris Milling wheat remains elevated at a near 15% backwardation, highlighting current challenges to the European crop outlook and uncertainties about the outlook for new crop supplies from Ukraine this coming autumn. Managed money accounts, also known as speculators, given how they leverage their positions using futures markets, have been net sellers of the nine food commodity futures tracked in this update since late April, almost one month before prices started to turn lower. Whether it was overbought markets or the temptation to book some profit following a strong run up in prices remains unclear, but from a record 1,112,000 lots representing a nominal value of $51.6 billion on April 22, that figure had dropped to 750,000 lots and $35 billion during the latest reporting week to June 14. Since April, head and shoulder formations have emerged on CBOT wheat charts, both the current front month of September and the December contract, which best reflects the final availability following this season's harvest. For the recent weakness to stick and extend, the break below necklines at $10.37 in September (last at $10.36) and around $10.48 in December (last at $10.52) needs to be decisively broken. Source: Saxo Group Source: Finally, some good news as food prices ease | Saxo Group (home.saxo)
When The Global Economy Recovers, We Can Expect Demand To Rebound

WCU: Commodities drop as inflation battle heats up | Saxo Bank

Ole Hansen Ole Hansen 17.06.2022 15:22
Summary:  The commodity sector traded lower in a week where central banks took centre stage after several rate hikes were announced in an ongoing effort to curb runaway inflation. Most notably the 75 basis point hike from the US FOMC, a strong move that raised the prospect of this action also hurting global growth, and with that demand for commodities. Responding to these developments, the Bloomberg Commodity Index recorded its biggest weekly loss in three months, with all sectors (apart from grains) suffering setbacks. Central banks took centre stage this past week after they announced rate hikes in an ongoing effort to curb runaway inflation. The 75-basis point rate hike – and promises of more to follow – announced by the FOMC on Wednesday, added to an ongoing rout in global stocks and bonds. In fact, global equities were headed for their steepest weekly decline in two years after the SNB (Swiss National Bank) and BoE (Bank of England) joined in, thereby adding to concerns that tighter monetary policies could undermine the post-Covid global economic recovery.The price recent price actions and changes seen in bonds and stocks have gone straight to the history books. An example being the S&P 500 which, in five out of the last seven trading days, has seen more than 90% of its stocks decline. Since 1928, we have not seen such an overwhelming display of selling. Together with the rout in Cryptos and blockchains, this was indeed a week where investors had trouble finding a haven, with some commodities being the exception. Global growth worries helped push the Bloomberg Commodity index to its biggest weekly loss in three months, with all sectors (apart from grains) suffering setbacks. The most notable decline was seen in the energy sector after a prolonged outage at a major LNG (Liquid Natural Gas) plant triggered a selloff in US natural gas, with more being available for domestic consumption. Inadvertently, the disruption in US gas supplies to Europe and Russia turning down the taps to Germany and Italy, saw European gas prices jump by more than 50%. A development which, together with already record high prices for diesel and gasoline, once again highlight Europe as the epicentre of growth concerns – mostly stemming from Russia’s war in Ukraine. Meanwhile, crude oil and fuel products refused to be dragged into the narrative of lower growth – leading to lower demand and lower prices. The current level of market tightness driven by supply issues is simply too big of a factor to ignore. As a result, we are seeing low availability of fuels into the peak summer demand season. Along with this, we are seeing a continued surge in the margins refineries earn from their production of fuels, especially diesel – the fuel that keeps the world and economies on the move. Being such an important input to the global economy, a small weekly loss amid rising growth fears from aggressive central bank rate hikes highlights the current predicament of tight supplies, driven by years of lower investments. These have been caused by historically bad returns, high volatility and uncertainty about future demand, ESG (Environmental, Social, Governance) and the green transformation. Several OPEC+ members, for various reasons, included those mentioned are close to being maxed out. With spare capacity being increasingly concentrated among a few Middle East producers, the prospect for a continued rise in demand over the coming years will be challenging.Sanctions against Russia and other multiple disruptions have led to the OPEC+ group trailing its own production target by more than 2.5 million barrels per day. The risk of even tighter markets was highlighted by the IEA (International Energy Agency) in their monthly update when it said that world oil supply will struggle to meet demand in 2023. A post-Covid resurgent Chinese economy and tighter sanctions on Russia being the main reasons and, despite emerging growth clouds, the Paris-based agency still expect demand to accelerate by 2.2 million barrels per day to 101.6 million barrels per day, only 0.3 million barrels per day above a recent forecast from the US Energy Information Administration.Following several failed attempts to break resistance in the $125 per barrel area, Brent instead went looking for support at lower prices. However, once again, the setback proved very shallow, with support being found ahead of $115 – a previous resistance-turned-support level.Industrial metals suffered a fresh setback as the Bloomberg Industrial Metal Spot Index hit a fresh low for the year – down 28.5% since the March record peak. The peak came just before Covid-19 outbreaks in China (the world’s top consumer of metals) helped trigger a sharp reversal. Between May and early June, the index went through a small recovery phase as China began lifting Covid-related restrictions, thereby boosting the prospect for growth initiatives. However, renewed lockdowns in Shanghai, the prospect of restrictions potentially not being lifted until next year as well as renewed focus on a central bank-driven global growth reversal helped send the sector sharply lower this week.Aluminium dropped to an 11-month low after US data stoked recession fears. This was while copper drifted lower towards key support in the $4 per pound ($8900 per tons) area, thereby setting up the potential for a challenge at a level from where prices have bounced on several occasions during the past fifteen months. As long as inventory levels in exchange monitored warehouses continue to fall, as opposed to rising given the current softness, we maintain our long held bullish view on the direction of the sector.A break in copper below the mentioned levels may trigger a temporary downward push which, in our opinion and using Fibonacci’s retracement numbers, could trigger a downward extension to $3.86 or in a worst-case scenario drop of around 12% to $3.50. Source: Saxo Group Precious metals: Gold and silver traded lower this week but well above levels that otherwise could be expected, given the adverse movements seen across other markets – most notably the dollar and US treasury yields both rising in response to the FOMC 75 basis point rate hike. However, as we highlighted in our most recent update gold has increasingly been showing signs of disconnecting from its normal strong inverse correlation with US real yields. Based on ten-year real yields at 0.65%, up from –1% at the beginning of the year, some will argue that gold trades too expensive by around 300 dollars.While rising dollar and yields in recent weeks have acted as a drag on gold, thereby raising discussions about its inflation hedging credentials, it is safe to say that other supporting drivers are currently at play. The most important being the risk of current central bank actions driving a hard landing, meaning that a US recession could emerge before inflation is being brought under control – thereby creating a period of stagflation, periods which historically has been bullish for gold.We believe that hedges in gold against the rising risk of stagflation, traders responding to the highest level of inflation in 40 years and turmoil in stocks and cryptos are some of the reasons why gold has not fallen at the pace dictated by rising real yields. With that in mind, we are watching what investors do (not what they are saying) through the ETF (Exchange Traded Fund) flows. During the past week, total holdings in bullion-backed ETFs have seen a small decline of less than 0.25% – again, a development highlighting investor maintaining exposure to offset the tumultuous conditions seen across other markets and sectors.Our long held bullish view on gold and silver has been strengthened by developments this past week. We still see the potential for gold hitting a fresh record high during the second half, as growth slows and inflation continues to remain elevated. The weekly chart shows that if $1,780 support is broken, there is no strong support before around $1,670 while a daily close above $1,880 is needed to change the current rangebound market behavior. Source: Saxo Group Source: WCU: Commodities drop as inflation battle heats up | Saxo Group (home.saxo)
The Gold Market Is Volatile, There Are Two Possible Developments

Gold: Surging real yields battle stagflation risks for supremacy

Ole Hansen Ole Hansen 14.06.2022 23:53
Summary:  Gold remains rangebound after Monday's drop, the biggest in three months, with surging US treasury yields and the market now pricing in two consecutive 75 basis point rate hikes being the latest developments challenging gold's ability to protect investors against surging inflation. The successful or unsuccessful race to combat inflation before the economy begins to suffer has become a major theme and one that will determine the ultimate direction of gold. Gold’s response to Friday’s stronger than expected US inflation print and tumbling consumer sentiment highlights the mixed focus that has kept bullion range bound for a while now. All year, gold has been battling rising treasury yields while at the same time finding support from investors looking for protection against inflation, stock market and geo-political risks. This battle culminated on Monday when traders spooked by the higher-than-expected inflation started to force the hand of the US FOMC by pricing in two consecutive rate hikes of 75 basis points. The FOMC meets on Wednesday, just weeks after Fed Chair Powell poured cold water on the idea, the FOMC would step up its pace of rate hikes above 50 basis points, but the shared view that the central bank is getting behind the curve has forced a sharp repricing of yields and rate hike expectations, while also bringing forward the timing of a US recession.  Since Friday, US two-year yields has spiked higher by a record 0.54%, reaching a 15-year high at 3.35% while ten-year real yields, a much-used gauge for the direction of gold has spiked higher to reach 0.65% a level last seen in March 2019 and up from -1% at the start of the year. Based on the historic relationship between gold and real yields, some will argue that gold is currently overpriced by more than 300 dollars. Against this significant headwind we are also increasingly seeing the risk of a hard landing meaning that a US recession could emerge before inflation is being brought under control, thereby creating a period of stagflation, periods which historically has been bullish for gold. As Ben Carlson, an author of finance books and market commentator somewhat jokingly wrote on Twitter: “The Fed needs to raise rates as quickly as possible to tame inflation by sending us into a recession where they can then cut rates to save us from the recession.” We believe that hedges in gold against the rising risk of stagflation together with traders responding to the highest level of inflation in 40 years, as well as turmoil in stocks and cryptos, are some of the reasons why gold has not fallen at the pace dictated by rising real yields. With that in mind we are watching what investors do, not what they are saying, through the ETF flows. During the past month when gold traded between $1787 and $1878, total holdings in bullion-backed ETFs have held steady within a narrow 13 tons range around 3,265 tons. Any major (negative) change is needed for us to reduce our long-held bullish view on gold, and with that also silver. Source: Saxo Group From a technical perspective the short-term outlook remains challenged, leading our technical analyst Kim Cramer to provide this comment for our update: “Monday morning buyers tried to lift spot gold spot higher, but sellers quickly took control. The heavy selling pushed the precious metal back below the 200-day SMA (Simple Moving Average) and formed a bearish engulfing candle, a development which demonstrates that sellers are currently in control. That picture is supported by RSI (Relative Strength Index) showing bearish sentiment indicating a rising risk that key support at $1,780 is likely to be tested.Weekly chart shows that if $1,780 support is broken there is no strong support before around $1,670, and in order to reverse the bearish picture a daily close above $1,880 is needed.” Source: Saxo Group Source: Gold: Surging real yields battle stagflation risks for supremacy | Saxo Group (home.saxo)
Russian-Ukrainian War And China-COVID Reality Are Factors, Which, Among Others, Influenced View On Commodities

WCU: Stalling growth no hindrance for higher commodity prices

Ole Hansen Ole Hansen 10.06.2022 16:01
Summary:  The commodity sector is showing little sign of global growth worries having a negative impact on prices. In fact during the past week, the Bloomberg Commodity Sport index reached a fresh record high, up 38% on the year, with most of the gains being driven by a surging crude oil, gas and fuel prices. Under normal circumstances, elevated commodity prices tend to drive a response from producers in the shape of rising production, which eventually would support lower prices through increased supply. In this we highlight the reason why this time may be different The commodity sector is showing little sign of global growth and demand worries having a negative impact on prices. In addition, over the past week, the Bloomberg Commodity Sport index – which tracks a basket of major commodities – reached a fresh record high, up 38% on the year. The sectors doing the heavy lifting remain energy and grains, having delivered year-to-date gains of 102% and 33% respectively. The industrial metal sector, which slumped by 25% between March and April when Covid-19 outbreaks locked down parts of the Chinese economy, has made a tentative attempt to recover in recent weeks. However, news of fresh lockdowns in Shanghai highlights the risk of a slower-than-expected recovery in demand from the world’s biggest consumer of metals.Surging demand for consumer goods during the 2020 to 2021 lockdown period, supported by government handouts and rock bottom interest rates, helped drain the supply of many key commodities from metals to energy. In addition, we have seen years of plenty supply of key food commodities reverse with adverse weather and the war in Ukraine turbocharging prices led by wheat and edible oils. These, and other developments, have seen inflation surge to the highest levels in 40 years. As a result, central banks across the world are now hiking rates in order to reduce liquidity and drive down prices through lower activity. The result is a challenged outlook for global growth – even in the US where a high frequency GDP tracker monitored by the Federal Reserve is now pointing towards increased risk of zero growth in the second half, potentially resulting in a technical recession which occurs when growth turns negative in two consecutive quarters. In addition, the World Bank this past week slashed global growth, warning of 1970’s-style stagflation. These developments have naturally raised the question of when the phenomenal rally in commodities since the 2020 Covid bottom will pause. Under normal circumstances, elevated commodity prices tend to drive a response from producers in the shape of rising production, which eventually would support lower prices through increased supply. In addition, the prospect of growth and demand slowing would normally solve the problem of high prices. The reasons why, in our opinion, we may not see these market reactions play out are driven by several factors – the most important being a reduced focus on investment from major producers of energy and metals. Other factors include sectors seeing some producers close to being maxed out on production, demand towards the green transformation, ESG investor and lending restrictions and increased focus on reducing dependence on Russia – a country increasingly seen as untrustworthy. Crude oil trades near a three-month high, with the front month contracts of WTI and Brent both trading above $120 per barrel. The recent upside extension is being driven by China’s latest attempt to reopen major cities following Covid-19 lockdowns, a development which is likely to increase demand from the world’s biggest importer at a time where the global supply chains remain stretched due to the war in Ukraine. In addition, the OPEC Secretary-General said most members are ‘maxed out’, a comment that helps explain why the recent OPEC+ decision to raise production by 50% was ignored by the market in the knowledge the group (already 2.5 million barrel per day below target) will continue to struggle raising production. In its monthly Short-Term Energy Outlook, the US Energy Information Administration left 2022 production unchanged at 11.91m b/d, in line with current levels, while boosting next year by 120k b/d to 12.97m b/d. In addition, they warned Russia’s production could drop by 18% by the end of next year. Refineries across the world are running at close to capacity to replace sanctioned barrels from Russia, and with supply being this tight, prices will likely need to go higher in order to kill demand, thereby supporting the painful process towards balancing the market. Source: Saxo Group Natural gas remains one of the most volatile futures markets, and while some sort of nervous stability has emerged in the European market, the US gas market remains highly volatile with strong hot weather-related demand and strong export growth not being met by rising production. As a result, the price of the Henry Hub gas contract reached a 13-year high this past week before temporarily suffering a sharp correction. This, as after a fire at an LNG export terminal in Quintana, Texas, briefly lowered prices for the fuel in the US while lifting Dutch TTF gas prices from a three-month low.The Freeport facility, one of seven US facilities exporting gas to overseas markets, will remain closed for at least three weeks, thereby halting close to 20% of total US LNG export capacity – the bulk of which goes to hungry buyers in Europe where the race is on the reduce dependency on Russian supplies. Gold, rangebound for more than a month traded softer after the US published another strong inflation print at 8.6%, a fresh 40-year high, from 8.3% expected, and after the ECB said it would start raising rates from July, thereby joining other central banks in combating rising inflation. However, the less hawkish outcome of the meeting helped send the euro lower versus the dollar, thereby adding downward pressure on bullion. The prospect of rising US treasury yields, and with that a stronger dollar, remains the main reason why some investors are reluctant to invest in gold as it reduces its ability to act as a hedge against inflation and the ongoing turmoil in bonds and stocks. We maintain the view that gold has – at least on a relative basis – been doing very well this year, especially for non-dollar-based investors. While gold in euros has returned around 8%, an investment in a broad EU government bond ETF or the Euro Stoxx50 stock index would have set you back by around 13%. A dollar-based investor has seen a relatively small 1% return in gold while the S&P 500 is down 15% and an ETF tracking long-dated bonds has lost a whopping 23%. We maintain a bullish view on gold and silver, once industrial metals, as we believe they will, find renewed strength. The main reason being the rising risk of a central bank policy mistake raising interest to the point where economic growth stalls. For now, gold remains stuck in a range with leveraged traders in futures and investors in ETF’s currently showing no clear conviction with positions in both having been rangebound for the past month. For that to change, we need to see a clear break above $1870 – the key level of resistance.Commodity related stocks lead our Saxo equity themed basketsThe 20 companies in our commodity basket continues to show a high degree of immunity from the storm raging across the equity market. Previous investor darling themes such as Crypto & Blockchain, E-commerce and Bubble stocks have all seen year-to-date declines of more than 45%, and it highlights the importance of holding exposure towards the so-called old economy where tight supply and high prices are likely to deliver a high level of profitability. Source: WCU: Stalling growth no hindrance for higher commodity prices | Saxo Group (home.saxo)
Recession Fears Continue To Rattle the Commodity Markets - Brent Crude Oil, Silver Futures Touch 4-week lows, Corn Futures Reach 6-week Highs.

Brent Crude Oil, Gold, Soybeans And Sugar Are Assets Which Increased In The Recent Days, Uncertain US Dollar (USD) Let S&P 500 Gain | Saxo Bank

Ole Hansen Ole Hansen 30.05.2022 13:42
Summary:  Our weekly Commitment of Traders update highlights future positions and changes made by hedge funds and other speculators across commodities and forex up until last Tuesday, May 24. A week where risk sentiment once again deteriorated on worries that aggressive moves to curb inflation might drive the US economy towards a recession. Bond yields and the dollar both traded lower in response to these developments, thereby inadvertently supporting the commodity sector where gains were led by energy as well as industrial and precious metals. Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial. Link to latest report This summary highlights futures positions and changes made by hedge funds across commodities and forex up until last Tuesday, May 24. A week where risk sentiment in the stock market deteriorated once again on worries that aggressive moves to curb inflation might tip the US economy into recession. This after recent economic data and corporate earnings pointed to a degree of macroeconomic deterioration. Bond yields and the dollar both traded lower in response to these developments which drove down the S&P 500 by 3.6% on the week. Thereby inadvertently supporting the commodity sector where gains were led by energy as well as the industrial and precious metal sectors.  Latest across market updates, including crude oil and gold, can be found in our daily Financial Market Quick Take here Commodities The Bloomberg Commodity Spot index traded a tad higher and not far below the April 18 record peak. Gains were led by precious and industrial metals, the energy sector took a breather while broad losses were seen across the agricultural sector led by corn, wheat, coffee and cotton. Speculators responded to these developments by adding length to a handful of commodities led by gold, brent crude, soybeans and sugar while a broad range saw reduction led by WTI crude oil, fuel oil products, corn, cocoa and livestock. Energy: The energy was mixed with net buying of Brent, being partly offset by long liquidation in WTI crude oil. In addition, all three fuel products saw net selling as a pickup in refinery activity following maintenance triggered some price weakness and profit taking. Overall the combined crude oil net long rose for a second week to reach 473k lots, a three-month high. Metals: Precious metals ended up being the best performing sectorduring the reporting week as lower bond yields and a weaker dollar supported a strong bounce in gold. The 2.5% rally supported a 42% increase in the net long position to 77.5k lots, still a much-depleted position compared with the March peak at 176k lots. Copper was bought for a second week as speculators continued to pair back short positions. Overall, a net short position of 11k lots has become a major tailwind for the bulls as the demand outlook in China improves as anti-virus measures are reduced. Agriculture: The grain sector has now seen a net reduction in bullish bets in four out of the last five weeks. Selling was led by corn and wheat while the soybean complex was mixed. Since 2010 the total net long across the six major grain futures has only reached above 800,000 lots on four occasions, and based on the previous three, that milestone subsequently triggered a major market correction and position adjustments. Whether the same can happen at this juncture remains to be seen and will most likely depend on weather developments and whether a corridor can be arranged so that Ukraine can ship out stranded stocks of wheat and corn.  Sharp price corrections in coffee and cotton supported long liquidations while the cocoa position flipped back to a net short for the first time in four months.ForexSpeculators cut bullish dollar bets by 9% to $21 billion, a four-week low. Driven by a near doubling of the EURUSD long as speculators added length for a fourth consecutive week. During this time, they bought €5.7 billion, and so far, their search for a peak in the dollar has been successful with the EURUSD trading at a five-week high at €1.076 after finding support below €1.04. Flows among the other IMM currency futures were mixed with selling of GBP lifting the net short to 32-month high, CHF, AUD and NZD being partly offset by demand for JPY and CAD.What is the Commitments of Traders report? The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class. Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and otherFinancials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and otherForex: A broad breakdown between commercial and non-commercial (speculators) The reasons why we focus primarily on the behavior of the highlighted groups are: They are likely to have tight stops and no underlying exposure that is being hedged This makes them most reactive to changes in fundamental or technical price developments It provides views about major trends but also helps to decipher when a reversal is looming Source: Saxo Bank
What Does Jeffrey Halley (Oanda) Think About 100bps Rate Hike? Important News About Soft Commodities!

Wheat conditions supports elevated prices | Saxo Bank

Ole Hansen Ole Hansen 25.05.2022 07:48
Summary:  Global food price inflation remains a key concern with supplies of many key food items becoming increasingly tight. Driven by a combination of weather worries and the war in Ukraine, the latter being the main reason why wheat and edible oils have led the rally. While speculation may have reached a peak based on historic developments, the market desperately needs improved weather in Europe and North America as well as an end to hostilities in Ukraine. Global food price inflation remains a key concern with supplies of many key food items becoming increasingly tight. Driven by a combination of weather worries and the war in Ukraine, it is raising concerns for lower supplies ahead of the coming northern hemisphere winter. The table below shows where the pain is currently being felt the most, and not surprisingly it is wheat and edible oils that are showing the greatest level of stress and soaring prices. Both being impacted by Putin’s war in Ukraine, a powerhouse and exporter of several key agricultural products, as his occupation has dramatically cut Ukraine’s ability to export its production via key exports hub on the Black Sea coast. The American Farm Bureau wrote this in one of their recent update: “Ukraine has six primary products with over a billion dollars in export sales: corn ($5.8 billion), sunflower seed ($5.7 billion), wheat ($5.1 billion), rapeseed ($1.7 billion), barley ($1.3 billion) and sunflower meal ($1.2 billion).” Because of tight market conditions and surging prices, we are increasingly seeing governments step in to protect domestic supplies to curb food price inflation. Most recently an Indonesian export ban on palm oil, partly because of surging prices for sunflower oil, was followed up by India’s surprise curb on wheat exports. This just weeks after analysts had predicted a near doubling in India’s wheat export from an already record level in 2021. However, a heatwave this past month has dramatically cut recent forecasts for a bumper export wheat, and this was followed up yesterday by an announcement that India is planning to cap sugar exports at 10 million tons for the current season that runs into September. A measure seen as an extreme precaution given current projections for production and available stock levels. The weekly Monday update from the USDA (US Department of Agriculture), regarding planting progress and crop conditions in the US, highlighted the precarious state of the US wheat market. While the planting of corn and soybeans has picked up momentum, the outlook for wheat spring planting remains challenged with only 49% of the wheat in the ground compared with 93% a year ago, and the slowest pace in 20 years. In addition, drought has hurt the quality of the soon to be harvested US winter wheat with the latest survey from the USDA showing a good to excellent rating of just 29%, compared with 48% last year. Source: Saxo Group North Dakota grows half of the US protein-rich spring wheat, and following the second wettest and eight coldest April in history, the fields have since received regular doses of water which has not allowed fields to become properly fit for planting. In the week to May 17, speculators or managed money accounts increased bullish bets on Chicago wheat to a 14-month high, but at ‘just’ 26,586 lots, the price impact remains relatively subdued. Overall however, the exposure across the six major Chicago traded grain futures remain elevated at 683k lots representing a nominal value of $37 billion, with the bulk held in corn (340k lots) and soybeans (147k lots). During the past 20 years the net long has only exceeded 800k lots on four occasions, the latest two in January last year and just five weeks ago. On the first three occasions, prices slumped to the extend that the net length on two occasions returned to zero while the one last year triggered a 60% reduction. Whether history can repeat itself all depends on near term weather developments, not only in the US but also in Europe where several major producers led by France are struggling with hot and dry weather. An end of the war in Ukraine would most certainly also send a relief correction through the crop market, however with some damage already done to this years crop, the prospect for elevated food prices for longer unfortunately remains a risk. Source: Saxo Bank
Is The OPEC+ Decision Only Economic? Oil Is Caught Between Fears Of A Reduction In Demand

COT: Wheat and crude oil length jump | Saxo Bank

Ole Hansen Ole Hansen 23.05.2022 15:10
Summary:  Our weekly Commitment of Traders update highlights futures positions and changes made by hedge funds and other speculators across commodities and forex up until last Tuesday, May 17. A week where risk sentiment continued to swing between hot and cold, long end bonds held steady while the dollar showed signs of topping out. The commodity sector rallied strongly with gains in energy, grains and softs more than offsetting fading weakness in precious metals Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial. Link to latest report This summary highlights futures positions and changes made by hedge funds across commodities and forex up until last Tuesday, May 17. A week where risk sentiment continued to swing between hot and cold before the S&P 500 Index recorded a 2% gain on the week, long end bonds held steady while the dollar showed signs of topping out. The commodity sector rallied strongly with gains in energy, grains and softs more than offsetting fading weakness in precious metals.Latest across market updates on can be found in our daily Financial Market Quick Take here Commodities The Bloomberg Commodity Spot index jumped 5.6% on the week with risk sentiment seeing a revival supported by bouncing stocks and a softer dollar. Gains being led by energy and grains, the two strongest sectors based on current fundamentals. Most notable buying seen in crude oil, soybeans, wheat, sugar and coffee while precious and industrial metals remained challenged by the recent slump. Overall hedge funds responded to these developments by adding length for the first time in four weeks to 13 out of the 24 major commodity futures tracked in this with the combined net long rising 4% to 1.74 million lots. Energy: Money managers increased their bullish bets on WTI and Brent crude oil by 60k lots during a week where a tight product market, especially in the US, triggered a double digit rally in WTI while Brent returned to challenge resistance in the $115 area. The biggest weekly addition in six months lifted the combined net long in WTI and Brent to 469k lots, an 11-week high. Despite supporting price action, the ICE gas oil contract saw continued long liquidation with the net long slumping to a 17 month low at 73k lots, down 50% from the February peak. Metals: The metal sectors share of the total net exposure shrank to a three-year low at just 2% on a combination of net short positions being held in platinum, palladium and copper together with reduced bullish exposure in gold and silver.Speculators cut their net long in gold by 26% to an eight-month low at 54k lots while silver returned to neutral for only the second time in three years. The copper net-short stayed near a two-year high at 17.2k with short-covering being offset by long liquidation as the price rose by 2%. Highlighting the need for an even bigger bounce in order to force a change in the current weak sentiment towards copper and the industrial sector in general. The same goes for gold, which in order to turn more investor friendly, will need to break the next significant hurdle at $1868, the 38.2% retracement of the recent 210-dollar correction.Agriculture: In grains, the net long in Chicago wheat jumped by 71% to 26k lots, a 14 month high, after the price surged by 17% in response to US crop worries and after India’s export ban jolted the market. The soybean complex was mixed with buying of soybeans being offset by selling of meal and oil. In softs, funds increased their Arabica coffee net long by 51% to 29k lots, driven by short-covering, as the price jumped 11.5% on frost worries. Despite persistent worries about the outlook for production in Brazil following last year’s frost damage and current weather worries, the price has been loosing momentum in response to global demand worries. Read next: Altcoins: Ripple Crypto - What Is Ripple (XRP)? Price Of XRP | FXMAG.COM Forex In fx, speculators maintained an unchanged dollar long position in a week where profit taking reigned as the greenback lost ground against all the currencies tracking in this update. Overall the changes were very modest with net selling of the commodity currencies being offset by MXN and another week of euro buying. These changes effectively left the aggregate dollar long against nine IMM currency futures and the Dollar Index unchanged on the week at $22.9 billion.What is the Commitments of Traders report? The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class. Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and otherFinancials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and otherForex: A broad breakdown between commercial and non-commercial (speculators) The reasons why we focus primarily on the behavior of the highlighted groups are: They are likely to have tight stops and no underlying exposure that is being hedged This makes them most reactive to changes in fundamental or technical price developments It provides views about major trends but also helps to decipher when a reversal is looming Source: Saxo Bank Follow FXMAG.COM on Google News
Tips for beginner traders in EUR/USD and GBP/USD on July 22, 2022

WCU: Comeback week for industrial and precious metals | Saxo Bank

Ole Hansen Ole Hansen 20.05.2022 18:11
Summary:  The commodity sector continued to find support this past week, despite the hurricane sweeping across global stock markets where the S&P 500 so far has recorded its fourth biggest drawdown since 2010. Gains this past week were concentrated in industrial and precious metals - sectors that have suffered setbacks during the past two months. In addition, the risk of a global food crisis continues to support the agriculture sector while a tight fuel-product market kept crude oil range bound despite economic growth worries. The commodity sector continued to find support this past week, despite the hurricane sweeping across global stock markets. US stocks posted their biggest daily drop in almost two years on Wednesday, driven by surging inflation, weak earnings and the prospect of aggressive monetary policy tightening hurting economic growth. Nevertheless, the Bloomberg Commodity Spot index managed to climb by 1.6% and, while we are seeing the fourth biggest drawdown in the S&P 500 since 2010, the commodity sector continues to highlight the need for both supply and demand to keep prices stable. With the supply of many key commodities – from grains and coffee to fuel products and some industrial metals – being challenged, the sector is likely to remain supported despite softer growth; especially considering the prospect for a government-supported stimulus boost to a post-lockdown China. Growth in the country has been increasingly challenged by its stubborn adherence to the dynamic zero-Covid policy despite mounting economic and social costs. Gains this past week were concentrated in industrial and precious metals – sectors that have suffered setbacks during the past two months. In addition, the risk of a global food crisis continues to rise, with Russia’s aggression in Ukraine and poor weather conditions being the main culprits for the disruption to a lower supply of key food commodities. The grains sector hit a fresh record high with the Bloomberg Grains Spot Index sprinting to a +30% gain on the year. Soybeans led the rally, followed by wheat with corn registering a small loss in the week. Global worries about a food crisis persist with disruptions in shipments from the Ukraine, one of the world’s most important supplier of high-quality wheat and sunflower oil causing ripples around the world. Ukrainian farmers have almost completed the sowing of spring wheat for the 2022 harvest and the overall rate of this year's spring crop sowing is 25% lower than at the same date in 2021, the agriculture ministry said on Friday. A couple of positive supply news, however, helped ease but by no means remove worries about a global food crisis. Palm oil slumped after Indonesia ended its short-lived export ban. Wheat which earlier in the week surge to fresh highs in Europe and the US on worries about supplies from India saw prices ease on forecast for a bumper crop year in Russia. However, comments from agriculture analysis firm Gro Intelligence that the world only has 10 weeks’ worth of wheat consumption in reserve will keep prices supported. At least until we get some more clarity over production levels in Europe and North America, both areas that have seen a challenging weather-related start to the growing season.In our latest industrial metal-focused update, we wrote that the precious metals sector was looking to China for a rebound and, indeed, this week saw some of the signals that China is starting to turn more supportive. Before then, the Bloomberg Industrial Metal Index had lost 25% since the early March peak, with the main catalysts – aside from global growth worries – being China and its zero-Covid policy. Outbreaks in Shanghai and Beijing have been met with a prolonged period of lockdown, hurting economic growth and creating major bottlenecks across global supply chains.This week in China, we saw retail sales slump 11% and youth unemployment hit a record 18.2%, as well as economists forecasting downgraded GDP. Responding to these developments on Friday, Chinese banks cut their 5-year loan rate by a record 0.15 basis points. Keep in mind, this is happening while the rest of the world is going in the opposite direction, and it highlights the Chinese government’s willingness to support the economy. More support will likely follow as the government seeks to support infrastructure and property projects, which are both critical for industrial metal demand.Around the timing of the early March peak in prices, stock levels of the four major industrial metals held at warehouses monitored by the LME and Shanghai Futures Exchange stood at 1.77 million tons. Instead of rising as demand according to the price action showed weakness, this level has continued to fall, reaching 1.43 million tons this week – a 19% decline during this time.It highlights our view that a global economic slowdown does not prevent industrial metals from moving higher, despite supply potentially struggling to keep up with demand not only from China, but also from the energy transition away from fossil fuels. A transition that, in name, is green but actually is very black when you consider the number of different metals that are needed in the process. These range from aluminum, copper and nickel to more exotic metals like rare earth minerals, cobalt and lithium.High-Grade Copper: Despite the month-long correction, HG copper remains rangebound, having so far failed to properly challenge key support in the $4 per pound area. As it stands, the recovery this week has taken HG copper back to its 21-day moving average, with a break above signaling a loss of negative price momentum. If realised, it may soon force speculators to cover a net short which, in the week to May 10, doubled to reach a two-year high at 17.7k lots or 201k metric tons. Source: Saxo Group Gold, in a downtrend since mid-April, found a fresh bid amid continued turbulence across global stock markets. During the past month, gold suffered from the double blow of a stronger dollar and the FOMC signaling an aggressive pace of future rate hikes to combat inflation at the highest level in decades. This is fine if the economy does not suffer too much of a setback, thereby raising the risk of recession. What changed this week has been dismal earnings news from large US retailers raising the risk of a deeper than expected economic slump.We maintain a bullish outlook for gold, given the need to diversify amid a troubled stock market and the mentioned potential increased risk of a FOMC policy mistake driving yields and the dollar lower. From the chart below, gold has its work cut out, and a great deal of work is needed to mend the damage done during the past month. However, the first sign of improvement has been the break above the 200-day moving average at $1839 – with the next big challenge being $1868, the 38.2% retracement of the 210-dollar April to May correction.Silver, supported by the bounce across industrial metals, seems to have found its footing following a 22% correction, which – at one point – extended below previous support around $21.50. With speculators having cut their positions to neutral, any renewed upside momentum is likely to attract fresh buying from underexposed funds. Crude oil spent most of the week challenging the upper end of the trading range that has prevailed for the past six weeks. However, relative calm market action during this time has been hiding a market in continued turmoil where major opposing forces have managed to keep it rangebound. During this time, the U.S. government has injected millions of barrels in a failed attempt to suppress the price while Chinese demand has suffered due to its zero-Covid strategy.The fact the market has not fallen below $100 highlights the underlying strength with tight supply of key fuels, self-sanctioning of Russian crude oil, OPEC struggling to increase production and unrest in Libya all supporting the market. With China potentially starting to ease lockdowns and with unrest in Libya still growing, the short-term price risk remains firmly skewed to higher prices.During the past few weeks, the focus has turned from a rangebound crude oil market to the product market where the cost of gasoline, diesel and jet fuel have surged to levels not seen in years (if ever). The combination of refinery maintenance, a post pandemic reduction in capacity as well as self-sanctioning of Russian products have all led to incredible tight markets. Especially in North American refineries, where they are running flat out to produce what they can and, in turn, benefitting from mouthwatering margins.So, despite the prospect for slower global economic growth, the price of crude oil remains supported. If we stick to our wide $90 to $120 range call for Brent during the current quarter, while still considering structural issues (most importantly the continued level of underinvestment and OPEC’s struggle to increase production), this will continue to support prices over the coming quarters. US natural gas had another rollercoaster week, ending up off the highs after twice finding resistance around $8.5/therm. The current price is up by 200% compared to the same time last year, with record exports via LNG, flat production growth and a recent heatwave across the southern states increasing demand for cooling. However, the weekly injection of 89 billion cubic feet (bcf) to 1732 bcf was in line with expectations and helped reduce the deficit to the 5-year average to 15.2%. In addition, the milder weather ahead and Europe suffering from a temporary bout of LNG indigestion could suggest a period of stable prices. However, overall rising global demand and a sharp discount to prices in Europe and Asia is likely to prevent any significant weakness during the coming months. Source: Saxo Bank
Price Of Gold Is Now Bouncing Higher But Trend Remains Controlled By Bears

Gold pounces on stock market malaise | Saxo Bank

Ole Hansen Ole Hansen 19.05.2022 23:56
Summary:  Gold, in a downtrend since mid-April, has found a tentative bid amid continued turbulence across global stock markets. So far, however, the fresh bid has not been strong enough to rattle some of the recent established tactical short positions. For that to happen the metal needs a runaway upside day or a period of consolidation back above the 200-day moving average, currently at $1839/oz. From an absolute return perspective gold’s year-to-date performance in dollars can be viewed as a disappointing Gold, in a downtrend since mid-April, has found a tentative bid amid continued turbulence across global stock markets. So far, however, the fresh bid has not been strong enough to rattle some of the recent established tactical short positions. For that to happen the metal needs a runaway upside day or a period of consolidation back above the 200-day moving average, currently at $1839/oz. Read next: Altcoins: What Is PancakeSwap (CAKE)? A Deeper Look Into The PancakeSwap Platform| FXMAG.COM From an absolute return perspective gold’s year-to-date performance in dollars can be viewed as a disappointing, but when considering the impact of the stronger dollar and the steep losses in stocks and bonds, any diversified investor with gold is likely to be satisfied. The yield on US ten-year inflation adjusted bonds trades lower with the break below the 21-day moving average at +0.09% During the past month, gold has been suffering from the double blow of a stronger dollar and the FOMC (Federal Open Market Committee) signaling an aggressive pace of future rate hikes in order to combat inflation at the highest level in decades. Fine, if the economy does not suffer too much of a setback, thereby raising the risk of recession. What has changed during the past 48 hours has been dismal earnings news from large US retailers raising the risk of a deeper than expected economic slump. Most recently Target Corp which yesterday plunged the most since 1987’s Black Monday crash. In his comments the CEO sited persistent cost pressures and bloating inventories amid a change in consumer spending as reasons. These developments helped deepen the global stock market rout, and today the weakness has continued, thereby supporting short covering and fresh haven buying of US bonds while the dollar has softened. All developments that has supported the mentioned bid in gold. The yield on US ten-year inflation adjusted bonds trades lower with the break below the 21-day moving average at +0.09% signaling a loss of short-term bullish momentum.  Read next: Altcoins: What Is Litecoin (LTC)? A Deeper Look Into The Litecoin Platform| FXMAG.COM The loss of momentum in recent weeks have seen ETF (Exchange Traded Fund) investors reduce gold holdings in all but one of the last 18 days while money managers in the latest reporting week to May 10 cut their net long in COMEX gold futures to a three-month low. Interestingly the latest reduction was primarily driven by long liquidation with no signs of appetite for naked short selling.  We maintain a bullish outlook for gold given the need to diversify amid a troubled stock market and the increased risk of a policy FOMC policy mistakes driving yields and the dollar lower. From the chart below it is clear that gold has its work cut out, and a great deal of work is needed to mend the chart damage done during the past month. The first sign of improvement would be a break above the 200-day moving average at $1839 followed by $1868, the latter being the first level to signal loss of bearish momentum. Source: Saxo Group Source: Saxo Bank
Natgas Fought Back And Now Have A Solid Position! Iron And Copper Are Out Of Fashion!?

COT: Copper short doubles in week of broad fund selling | Saxo Bank

Ole Hansen Ole Hansen 16.05.2022 13:44
Summary:  Our weekly Commitment of Traders update highlights futures positions and changes made by hedge funds and other speculators across commodities and forex up until last Tuesday, May 10. A week that saw continued risk off as the combination of high rates and potential recession as inflation surges kept stocks under pressure while lifting bond yields and the dollar. Commodities hurt by the prospect for lower growth, most critically in China, saw broad selling with funds cutting their exposure to a 21 month low. Focus on copper with funds doubling their short position ahead of a potential easing of lockdowns in China Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial. Link to latest report This summary highlights futures positions and changes made by hedge funds across commodities and forex up until last Tuesday, May 10. A week where a continued sell off in global stocks pushed the S&P 500 below 4,000 for the first time in more than a year while US bond yields climbed to a fresh cycle high. Financial markets have become increasingly challenged by a combination of high rates and a potential recession as inflation surges. In addition the wind has come out of the commodity bull market with China, a major consumer, paying an increasingly high price for its Covid Zero Policy. Adding to this continued dollar strength, and most asset classes from bonds and stocks to cryptos and commodities remain under pressure, and speculators in commodities and forex have adjusting their positions accordingly.  Commodities The Bloomberg Commodity Spot index dropped 3.1% on the week with losses in energy (-4%), industrial metals (-6.1%), precious metals (-2.5%) and softs (-3.7%) while grains managed a small plus led by wheat. Overall hedge funds and money managers responded to these changes by cutting bullish bets across the 24 major futures tracked in this by 9% to a 21 month low at 1.68 million lots, a 25% reduction since the recent peak in late February.  Twenty out of 24 commodity futures tracked in this update traded lower on the week with eighteen of those seeing positions being reduced with four commodities seeing position levels drop to the lowest in at least a year. Latest updates on crude oil, gold and wheat can be found in our daily Quick Take here Energy: Crude oil continued rangebound trading behavior triggered a small amount of net selling of WTI and Brent. The combined long at 410k lots remains near a cycle low with the current price action being high on uncertainty and low on trading signals. The product space was mixed with gas oil and gasoline seeing net reductions while the net long in NY Diesel rose by 20%.Metals: The exodus out of metals, both precious and industrial continued, and the combined long at just 49k lots across the five futures contract tracked, was the lowest in almost three years. Gold, still holding above its 200-day moving average last Tuesday saw its net long reduced for a fourth week to a three-month low at 73.9k lots with most of the 9k reduction being driven by long liquidation, and not fresh short selling. In silver speculators held a neutral position following an 89% slump in the net long to just 1.7k lots, with the bulk of the reduction being by short sellers looking for an even deeper slump.In copper, the net short doubled to a two-year high at 17.7k lots as the price drop extended towards key support at $4/lb. China lockdowns have been the main catalyst behind the recent 25% decline in the Bloomberg Industrial Metal Index. It highlights the potential risk of a price reversal once lockdowns start to ease, a bounce that may now receive some additional momentum from the hedge funds covering some of their short position.Agriculture: The whole sector, except wheat, got caught up in the strong dollar risk off move with the biggest reductions seen in soybeans, sugar, corn and cocoa. In grains, the net long across the six futures contract tracked in this was reduced for a third week, this after reaching a 12-year high last month. Surging wheat prices only managed to attract a small amount of buying, and despite an overriding bullish outlook due to global weather woes and Ukraine war, the net long in Chicago and Kansas wheat remains muted at 58k lots.ForexContinued broad dollar strength drove a 5% increase in the gross dollar long against ten IMM futures and the Dollar Index. However, the muted $1.2 billion increase to $22.8 billion, a four- month high, was caused by speculators (wrongly as it turned out) trying to buy EURUSD ahead of €1.05 support. This action triggered 22.9k lots or $3 billion equivalent of euro buying which helped flip the position back to a net long, just days before the break below force fresh long liquidation.What is the Commitments of Traders report? The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class. Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and otherFinancials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and otherForex: A broad breakdown between commercial and non-commercial (speculators) The reasons why we focus primarily on the behavior of the highlighted groups are: They are likely to have tight stops and no underlying exposure that is being hedged This makes them most reactive to changes in fundamental or technical price developments It provides views about major trends but also helps to decipher when a reversal is looming
Natgas Fought Back And Now Have A Solid Position! Iron And Copper Are Out Of Fashion!?

Industrial metals look to China for a rebound | Saxo Bank

Ole Hansen Ole Hansen 12.05.2022 09:09
Summary:  Led by industrial metals, the commodity sector is currently going through a correction. Following a record run in Q1 such a move was long overdue with the main catalyst being driven by China and its no tolerance policy towards Covid-19. In addition, a combative US central bank driving up funding cost and a much stronger dollar together with signs of a global slowdown caused by inflation at the highest level in decades have all helped raised some doubt about the outlook for demand. In this we take a closer look at copper and why we maintain a positive price outlook. The commodity sector is currently going through a correction, and after witnessing a record run higher during the first quarter, such a move was long overdue. The main catalyst for the weakness has undoubtedly been driven by China and the no tolerance policy towards Covid-19, where outbreaks in Shanghai and Beijing have been met with a prolonged period of lockdowns which has hurt economic growth while creating major bottlenecks across global supply chains.In addition, a combative US central bank driving up funding cost and a much stronger dollar together with signs of a global slowdown caused by inflation at the highest level in decades have all helped raised some doubt about the outlook for demand. We have in recent updates and webinars highlighted the need, not only to focus on demand but also the supply side when trying to determine the outlook for the commodity sector. While demand may show signs of easing, the supply side looks equally challenged across several key commodities, spanning from energy to industrial metals and agriculture products. Developments that in our mind may prevent prices from a much needed deep correction in order to ease global price pressures. Example: WisdomTree Industrial Metals, a UCITS eligible ETC (Exchange Traded Commodities) tracks the Bloomberg Industrial Metals Total Return Index. Source: Saxo Group As mentioned, much of the slowing growth focus has so been directed at China, the world’s biggest importer and consumer of raw materials, especially after an initial and failed attempt in late March to prevent the virus from spreading from parts of Shanghai. Six weeks later and the Covid outbreaks in China and restrictions intended to contain them have indirectly added to operating costs, making it tougher for factories to maintain production, obtain raw materials and ship out finished goods. Industrial metals, the most China-centric commodity sector has suffered the most from these developments with the Bloomberg Industrial Metals index having fallen by close to 25% since the March 7 record peak. Other sectors like precious metals (-12%), energy (-10%), grains (-5%) and softs (-6%) have seen smaller declines from their recent peaks. With the industrial metal sector having almost reversed back to levels seen at the start of the year, the question remains what may support an eventual floor under the market. The simple answer is China. China’s current situation was recently described by a major investor in Hong Kong as the worst in 30 years with Beijing’s increasingly fraught zero-Covid policies slowing growth while raising discontent among the population. As a result, global supply chains continue to be challenged with congestions at Chinese ports building, while demand for key commodities from crude oil to industrial metals have seen a clear drop. One of the consequences being the need for the government to launch a major stimulus drive to support a recovery in growth, currently well below the 5.5% target. Such initiatives are likely to support the industrial metal sector given the focus on infrastructure and energy transition, hence our view that following the recent weakness a floor is not far away. A renewed pickup in demand for industrial metals from China will once again expose the precarious low level of available inventories. Adding to this the government supported energy transition, especially in Europe where getting rid of dependency on Russian energy supplies have become a major focus, and the market may quickly turn its focus from demand to tight supply. Inventories of key industrial metals from aluminum and copper to nickel and zinc at exchange monitored warehouses are at multi-year low levels, and with additional supply not easily accompliced, a tight supply outlook may help support the sector finding a floor and move higher. As an example, the recent loss of momentum and China focus has seen the HG copper contract slump to the lower end of its year-long trading range, and in the process speculators have flipped their position back to a net short for the first time in two years. A bounce from current levels without challenging key support towards $4 per pound may trigger an initial short-covering move from recently established short positions. Source: Saxo Group Our bullish view on industrial metals have not changed, but given the risk of weaker economic growth ahead we do not expect a fresh runaway rally. Instead we see steadily higher prices driven by tight supply, China growth initiatives and the green energy transformation. The below table highlights some of the major mining companies involved in copper production. The top six derives more than 60% of their revenues from copper, and the recent correction, driven by general stock market weakness and lower copper prices, have seen these stocks drop between 25% and 48%.
Is The OPEC+ Decision Only Economic? Oil Is Caught Between Fears Of A Reduction In Demand

Commodities Analysis By Saxo Bank's Ole Hansen

Ole Hansen Ole Hansen 22.04.2022 16:11
Commodities 2022-04-22 14:15 Summary:  The commodity market focus continues to alternate between supporting supply disruptions and the risk of lower demand driven by prolonged lockdowns in China hurting growth, and not least central bank efforts to combat inflation levels not seen since the 1980’s. If the latter was the only focus, a peak in commodities would be near, however we see an equally challenged supply side keeping the sector supported for a prolonged period of time There is little doubt that recent very strong readings on growth and employment will start to be negatively impacted over the coming months by persistently-high inflation and rising rates. If that was only the focus on commodities, the peak would be in by now and lower prices could be expected during the coming months. However, we believe commodities will continue to be supported as supply is likely to be equally or perhaps even more challenged than demand. Sanctions against Russia, now a pariah nation to much of the world, are unlikely to disappear once peace returns to Ukraine. Being the world’s second largest exporter of commodities from energy to metals and agriculture, consumers and industries around the world will continue to struggle sourcing the raw materials needed. In addition, recent weak first-quarter trading updates from the biggest mining companies, such as BHP, Vale, Rio Tinto and Anglo American, have all highlighted the challenge they face with the rising cost of everything from steel and diesel to labor, as well as social unrest and troubled weather. All factors that have seen production fail to meet expectations. Copper, as an example, remains range-bound and while the short-term demand outlook has worsened and inventories at exchange-monitored warehouses have risen during the past four weeks, the outlook in our opinion remains price supportive. The demand for action to isolate Russia through a reduction in dependency of its oil and gas is likely to accelerate the electrification of the world, something that requires an abundant amount of copper. As the war drags on and hostilities temporarily slow down, the market attentions have turned to the lower demand theme which is currently being driven by some short and other more long-term developments. Crude oil is the most noticeable in this context, having shed most of its invasion-driven gains with the focus turning to China’s worsening covid outbreaks, the release of strategic reserves and a hawkish turn by the US Federal Reserve raising growth and demand concerns. The possibility of the U.S. tumbling into a recession next year was an outcome suggested  by some analysts this week after the Federal Reserve raised the prospect of faster pace rate hikes to combat high and widening inflation. The market has almost priced in ten 25 basis points rate hikes during the next ten months, with the Fed’s Bullard looking for an even faster pace. In addition, the Fed will start to aggressively trim its balance sheet from May and the reduction of liquidity will have the same impact of three or four additional 25 basis point hikes. Inflation remains a key concern for the market and while it was talked about in 2021, it is now increasingly being felt by consumers and businesses around the world. The impact of EU gas prices trading six times above their long-term average on heating bills and energy intensive production from cucumbers to steel and fertilizer is being felt and the economic fallout can increasingly be seen. Global food prices meanwhile remain a key concern as highlighted by the FAO Food Price Index. In March it jumped 12.6% to a record after the war wreaked havoc on supply chains in the crucial Black Sea breadbasket region, a key supplier to the global market of wheat, corn and vegetable oils. While the index was 33% higher than the same time last year, the latest increase reflected new all-time highs for vegetable oils (23.2% MoM, 56.1% YoY), cereals (17.1%, 37.3%) and meat sub-indices, while those of sugar (6.7%, 22.6%) and dairy products also rose significantly. Source: Saxo Group Chile, a supplier of 25% of the world’s copper, have seen production slow in recent months, and with an “anti-mining” sentiment emerging in the newly elected government, the prospect of maintaining or even increasing production seems challenged. In addition, Chile has entered its 13th year of drought and water shortages are having a major impact on the water-intensive process of producing copper. In addition, government legislation has been put forward to prioritize human consumption of water, and if voted through it may delay investment decision but also force mining companies to invest in desalination facilities, thereby raising the cost of production further. Crude oil continues to trade within a narrowing range around $107 in Brent and $102.5 in WTI. Beneath the surface, however, the market is anything but calm with supply disruptions from Libya and Russia currently being offset by the release of strategic reserves and lower demand in China where officials are struggling to eradicate a wave of Covid-19 in key cities. In addition, the market is on growth alert with the US Federal Reserve signaling an aggressive tightening mode in order to curb inflation, a process that most likely will reduce growth and eventually demand for crude oil. US refinery margins hit a record earlier this week before falling by more than 10%, developments still reflecting the high prices global consumers are forced to pay as supply of key fuels, such as diesel and gasoline, remain tight due to reduced flows from Russia. Next week, the focus will turn to earnings from the oil supermajors such as Exxon Mobil, TotalEnergies and Chevron. Apart from delivering eye-watering profits the market will mostly be focusing on the prospect for increased production and how they see the impact of the war in Ukraine, demand destruction from rising prices and monetary tightening. With the war ongoing and the risk of additional sanctions or actions by Russia, the downside risk to crude oil remains, in our view, limited. In our recently published Quarterly Outlook we highlighted the reasons why oil may trade within a $90 to $120 range this quarter and why structural issues, most importantly the continued level of underinvestment, will continue to support prices over the coming years. Gold and silver price developments this past week described very well the current drivers impacting markets with gold trading relatively steady while silver saw renewed selling pressure.  Despite its recent lackluster price performance, gold nevertheless continues to attract demand from asset managers seeking protection against rising inflation, lower growth, geopolitical uncertainties as well as elevated volatility in stocks and not least bonds.This past week the market once again raised its expectations for US rate hikes with projections now pointing to three consecutive half-point Fed interest-rate hikes. The quickest pace of tightening since the early 1980’s could see rates higher by 2.5% by December. Gold’s ability to withstand this pressure being seen as the markets attempt to find a hedge against a policy mistake tipping the world’s largest economy into a downturn. So far, however, the current US earnings season has shown companies are able to pass on higher costs and preserve margins. With input prices staying elevated due to war and sanctions and a general scarcity of supply, only the killing of demand can bring down inflation. A view that has seen the gold-silver ratio hit a two-month high above 80 with silver underperforming given its semi-industrial status. Total holdings in bullion-backed ETFs meanwhile hit a fresh 14-month high as asset managers continue to accumulate holdings into the current weakness. In addition, signs of strong retail and central bank demand are likely to support gold, despite the recent breakdown in correlation between gold and US ten-year real yields indicating gold on this parameter alone is overvalued. In our recently published Quarterly Outlook we highlight the reasons why we see the prospect for gold moving higher and eventually reaching a fresh record-high later this year. Gas prices in Europe have lost some momentum this month with spring and warmer weather reducing demand, thereby sending the price of prompt delivery gas to the lowest level since the start of the war in Ukraine. Low supplies from Russia and a reduction in flows from Norway due to seasonal maintenance has been offset by strong arrivals of LNG shipments and a warm beginning to spring. As a result, storage levels across the continent have started to build almost a month earlier than last year. As Europe steps up its effort to reduce dependency on Russian gas these developments have been met with a sigh of relief, but a long and very expensive road lies ahead for this plan to succeed. In the short term, the market will continue to worry European buyers objection to Russia’s rubles-for-gas order with bills due later this month.  While the front month price of Dutch TTF benchmark gas has dropped to around €100/MWh, still six times the long-term average, the cost of securing gas for the coming winter from October to next March remains stubbornly high around the same level. In other words, the usual profitable trade of buying cheap summer gas to storage in order to sell it at a higher price during the peak winter demand season is currently not working. What it will mean for the speed of stock building remains to be seen. In the US meanwhile the front month Henry Hub natural gas contract reached a 13-year high around Easter above $8/MMBtu or €25/MWh in European money, before reversing lower on technical selling to the current $7/MMBtu. Strong domestic and export demand together with a shortage of coal are testing drillers’ ability to expand supplies, not least considering a US government pledge to increase exports to Europe. So far, no major pick up in production has been seen, resulting in stockpiles trailing the seasonal average by around 17%.
Forecasts For Q4: The Power And Gas Crisis Will Reach Its Peak

Rising Inflation And Strong Dollar (USD), Stable Gold (XAUUSD) And Rising Yields... Crude Oil...

Ole Hansen Ole Hansen 20.04.2022 21:55
Commodities 2022-04-20 14:00 Summary:  Gold, currently up around 7% so far this year, continues to perform strongly despite persistent headwinds from rising real yields and a stronger dollar. Instead the yellow metal has increasingly been focusing on multiple uncertainties, some of which were already present before Russia invaded Ukraine. Inflation and growth concerns have both been turbocharged by war and sanctions, and together with elevated volatility in stocks and not least bonds, these developments have seen investors increasingly look for safe havens in tangible assets such as investment metals. Impressive, is the word best describing gold’s performance so far this year. Currently up around 7% during a time where normal drivers such as US real yields and the dollar have risen, normally a development that would see gold struggle. The prospect of aggressive tightening by the US Federal Reserve has driven ten-year real yields higher by more than 1% while supporting a near 4% rise in the dollar against a broad index of currencies. Last year’s relatively weak performance, especially against the dollar, despite emerging inflationary concerns was driven by portfolio managers cutting back on the holdings they accumulated during 2020 as stock markets rallied and bond yields held relatively steady, thereby reducing the need for diversification. Fast forward to 2022 and we are now dealing with multiple uncertainties, some of which were already present before Russia invaded Ukraine. Inflation and growth concerns have both been turbocharged by war and sanctions, and together with elevated volatility in bonds and not least stocks, investors have sought safe havens in tangible assets such as investment metals. During the past year, gold and ten-year real yields have struggled to follow their usual inverse paths, and the dislocation accelerated further during Q1 when gold increasingly managed to ignore rising yields. At current levels gold is theoretically overvalued by around 300 dollars, and highlights a major shift in focus. The net reduction in bullion-backed ETFs that was seen throughout last year came to halt in late December, and since then total holdings have risen by 282 tons to 3325 tons. During the same time leveraged funds, primarily operating in the futures market, given the ability to trade lots valued at $195,000 for a margin of less than $8,000, have been much more dependent on the directional movements in the market. Following the March 8 failed attempt to reach a fresh record high they spent the following weeks scaling back exposure. An exercise that was not completed until the week of April 12 when they returned as net buyers, thereby aligning them with the mentioned ongoing demand for ETFs. Source: Saxo Group While inflation was something we talked about last year, the actual impact of sharply higher prices of everything is now increasingly being felt across the world. In response to this investors are increasingly waking up to the fact that the good years which delivered strong equity returns and stable yields are over. Instead the need to become more defensive has set in and these changes together with the risk of what Russia, a pariah nation to much of the world now, may do next if the war fails to yield the desired result. Instead of real yields, we have increasingly seen gold take some its directional input from crude oil, a development that makes perfect sense. The ebb and flow of the oil price impacts inflation through refined products such as diesel and gasoline while its strength or weakness also tell us something about the level of geopolitical risks in the system. In our recently published Quarterly Outlook we highlight the reasons why we see gold move higher and reach a fresh record high later this year. Source: Saxo Group
Awaiting US CPI And Speaking Of Disney and Uber. SEK And PLN As Central Banks Moves

COT: Specs exit commodities on Omicron and Fed worries

Ole Hansen Ole Hansen 06.12.2021 12:33
Commodities 2021-12-06 10:50 Summary:  Futures positions and changes made by hedge funds across commodities, forex and financials up until last Tuesday, November 30. A week that encapsulated the markets very nervous reaction to the Omicron virus news as well as Jerome Powell's increased focus on combatting inflation. While global stocks and US long end yields dropped, a 7% correction in the Bloomberg commodity index helped trigger the biggest and most widespread hedge fund exodus since February 2020. Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial. Link to latest report This summary highlights futures positions and changes made by hedge funds across commodities, forex and financials up until last Tuesday, November 30. The reporting week encapsulated the markets very nervous reaction to the Omicron virus news as well as Jerome Powell confirming inflation is no longer being transitory. His comments to the Senate banking committee raised expectations for faster tapering with the first full 0.25% rate hike now priced in for July next year. The US yield curve flattened considerably with virus related safe-haven demand driving down the yield on 10-year US treasury notes by 22 basis point. Global stocks slumped with the VIX jumping 8%. Hardest hit, however was the commodity sector after the Bloomberg commodity index slumped by 7%, thereby triggering the biggest and most widespread hedge fund exodus since February 2020. Commodities Hedge funds responded to heightened growth and demand concerns related to the omicron virus, and the potential faster pace of US tapering, by cutting their net long across 24 major commodity futures by 17% to a 15-month low at 1.8 million lots. This the biggest one-week reduction since the first round of Covid-19 panic in February last year was triggered by net selling of all but three livestock contracts. Energy: Hardest hit was the energy sector where renewed demand concerns sent the prices of WTI and Brent down by more than 15%. In response to this, hedge funds accelerated their pace of futures selling with the combined net long slumping by 90k lots to a one-year low at 425k lots. The loss of momentum following the late October peak has driven an eight-week exodus out of oil contracts, culminating last week, and during this time the net length has seen a 35% or 224k lots reduction. Potentially setting the market up for a strong speculative driven recovery once the technical and fundamental outlook turns more friendly.Latest: Crude oil (OILUKFEB22 & OILUSJAN21) trades higher following its longest stretch of weekly declines since 2018. Today’s rise apart from a general positive risk sentiment in Asia has been supported by Saudi Arabia’s decision to hike their official selling prices (OSP) to Asia and US next month. Thereby signaling confidence demand will be strong enough to absorb last week's OPEC+ production increase at a time when mobility is challenged by the omicron virus. For now, both WTI and Brent continue to find resistance at their 200-day moving averages, currently at $69.50 and$72.88 respectively.  Metals: Gold was net sold for a second week as speculators continued to reduce exposure following the failed breakout attempt above $1830. With Fed chair Powell signaling a change in focus from job creation to fighting inflation, sentiment took another knock, thereby driving a 13.7k lots reduction to a four-week low at 105k lots. Industrial metals also suffered with the net long in HG copper slumping by one-third to a three-month low at 13.4k lots. Copper’s rangebound trading behavior since July has sapped hedge funds involvement with the current net length a far cry from the 92k record peak seen this time last year.Latest: Gold (XAUUSD) received a small bid on Friday following mixed US data, but overall, it continues to lack the momentum needed to challenge an area of resistance just above $1790 where both the 50- and 200-day moving averages meet. Focus on Friday’s US CPI data with the gold market struggling to respond to rising inflation as it could speed up rate hike expectations thereby putting upward pressure on real yields which are inverse correlated to gold's performance.  A full 25 basis point rate hike has now been priced in for July and the short-term direction will likely be determined by the ebb and flow of future rate hike expectations. Agriculture: The whole sector with the exception of livestock took a major hit, just one week after funds had increased bullish bets on grains and softs by the most in 15 months. Both sectors suffered setbacks of more than 5% with recent highflyers like wheat and cotton taking big hits. As mentioned, selling was broad and led by corn, soybeans, sugar and cocoa, with the latter together with palladium being the only two contracts where speculators hold an outright short position.This week the grain market will be focusing on weather developments in Australia and its potential impact on the wheat harvest, as well as the monthly World Agriculture Supply & Demand report (WASDE) from the USDA.  Forex In forex, speculators reacted to renewed virus concerns by increasing bullish dollar bets against ten IMM currency futures and the Dollar Index to an 18-month high at $27.9 billion. Speculators were buyers of JPY (18.4k lots or $2 billion equivalent) but sellers of everything else, including euros (6.8k) and the two commodity currencies of AUD (16.9k) and CAD (10.9k). These changes resulting in the aggregate dollar long rising by $2.3 billion. In terms of extended positioning, a euro short at 23k lots was last seen in March 2020, the GBP short at 39k lots was a two-year high while the 60k lots MXN short was the highest since March 2017. What is the Commitments of Traders report? The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class. Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and otherFinancials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and otherForex: A broad breakdown between commercial and non-commercial (speculators) The reasons why we focus primarily on the behavior of the highlighted groups are: They are likely to have tight stops and no underlying exposure that is being hedged This makes them most reactive to changes in fundamental or technical price developments It provides views about major trends but also helps to decipher when a reversal is looming
Copper upside remains despite months of inaction

Copper upside remains despite months of inaction

Ole Hansen Ole Hansen 01.12.2021 16:26
Commodities 2021-12-01 15:00 Summary:  Industrial metals spent most of November trading sideways with concerns about demand being offset by tight market conditions, especially in aluminum and copper. In fact, the price has during these past few months, when worries about Chinese demand took centerstage, been trading relatively close to the average price seen since April. A behavior which in our view highlights a strong underlying demand for copper, not least considering the prospect for inelastic supply struggling to meet green transformation demand towards electrification. Industrial metals spent most of November trading sideways with concerns about demand being offset by tight market conditions, especially in aluminum and copper. Apart from two failed upside attempts in May and October, copper has since April stayed mostly rangebound not swaying too far away from its average price, at $9550 per tons in London and $4.35 per pound in New York. During the past few months copper has performed relatively well considering heightened worries about the economic outlook for China, and more specifically its property sector which has seen near defaults as well as a slump in home sales. Additional headwinds have been created by the stronger dollar and central banks beginning to focus more on inflation than stimulus. In order to counter Chinese economic growth concerns, Vice Premier Liu He has been out saying growth this year should exceed targets, and the government plans more support for business. High Grade Copper has been averaging $4.35 since April with the current action confined to a range between $4.2 and $4.5 while major support can be found in the $4 area. The lack of momentum in recent months has driven a sharp reduction in the speculative long held by hedge funds, a development that could trigger a significant amount of activity once the technical and/or fundamental picture becomes clearer. Against these mostly demand focused macroeconomic headwinds, we have at the same time been witnessing an unusual synchronised tightness in stock levels monitored by the major futures exchanges in London and Shanghai. Unusual in the sense that price arbitrage between the two exchanges often drive changes in stock levels from one exchange to the other. Recently however we have been witnessing levels fall at both exchanges, with aluminum and copper stockpiles at the LME falling to their lowest levels since 2007 and 2005 respectively. In fact, the six industrial metals traded on the LME are currently all trading in backwardation for the first time since 2007. A condition where spot prices trade higher than futures, and driven by the mentioned drop in inventories in response to a post-pandemic surge in demand as well as supply-chain disruptions. On the subject of supply, especially during the coming years when the green transformation will account for an increased proportion of global copper demand, planned mining taxes in Chile, the worlds biggest producers have raised the alarm bells. Politicians are looking for a bigger share of mining profits to help resolve inequalities exacerbated by the pandemic, and with a potential approval moving closer BHP Group has warned it could derail investments thereby making it harder to meet future demand, especially considering the mentioned need for copper towards electrification. Source: Bloomberg An example of increased copper demand driven by the green transformation are the number of finished and planned subsea interconnectors which are paramount for cutting emissions and boosting the effectiveness of renewable energy production. Increased volatility in the production of power from renewable sources such as wind and solar as opposed to traditional sources like coal and gas will continue to increase the need for large scale transmission capabilities of power between countries and regions. The cable below has been used in the now finished 720 kilometer North Sea Link between Norway and the UK, as well in the under-construction Viking link between Denmark and the UK. It carries as much as 1.45 Gigawatt (about the capacity of a nuclear reactor) with most of the 50 kg/meter weight coming from copper. Several other subsea links are planned over the coming years, and together with the need for increased capacity on the electrical grid to support the roll out of EV’s, demand for copper, the king of green metals, look set to increase over the coming years. Electrification and urbanisation will drive growth in copper wrote my colleague Peter Garnry in this update from November 19. In it he also offered a table of mining companies providing exposure to copper. The table below shows 16 mining companies with exposure to copper with Codelco, the largest copper producer in the world, absent from the list as the Chilean miner is only listed in Chile and thus not investable for our clients. The copper mining industry has delivered a median total return in USD of 132.6% over the past five years beating the global equity up 105% in the same period. The rising copper prices the past year driven by investors positioning themselves in green metals (defined as metals that will play a key role in the green transformation) which in turn has pushed up revenue in the industry by almost 40%. Sell-side analysts are generally bullish on copper miners with a median upside of 16% from current levels. In our view investors should select one or two copper miners to get exposure and avoid the ETFs on the industry as they are too broad-based and lack the pure exposure profile needed to play the copper market. As the table also show, there is no such thing as pure exposure to copper except for futures, options and CFDs on the underlying copper. The miner with the highest revenue exposure to copper is Antofagasta with 84.8% revenue share from copper extraction and refining. Most copper miners also extract gold and silver as part of their copper operations, and out of the 16 copper miners in our list, only 6 of these miners have more than 50% of revenue coming from copper extraction and refining.
COT: Speculative positioning ahead of Fridays omicron dump

COT: Speculative positioning ahead of Fridays omicron dump

Ole Hansen Ole Hansen 30.11.2021 18:42
Commodities 2021-11-30 10:30 Summary:  Futures positions and changes made by hedge funds across commodities, forex and financials up until last Tuesday, November 23. While a lot of water has flowed under the bridge since last Tuesday, it is nevertheless interesting, not least considering the report encapsulated the market reaction to last weeks renomination of Fed chair Powell which helped send both treasury yields and the dollar sharply higher, as well as the oil market reaction to the coordinated SPR release announcement. Finally, it also gives us an idea about the level of positioning ahead of Friday's omicron related sell off Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial. Link to latest report The below summary highlights futures positions and changes made by hedge funds across commodities, forex and financials up until last Tuesday, November 23. The report normally released on Friday's was delayed due to last weeks Federal holidays, and while a lot of water has flowed under the bridge, its nevertheless interesting. Not least considering the report encapsulated the market reaction to last weeks renomination of Fed chair Powell which helped send both treasury yields and the dollar sharply higher, as well as the oil market reaction to the coordinated SPR release announcement. Also it gives a good idea about how funds and speculators were positioned ahead of the sharp risk off to the new omicron virus variant. Commodities The commodity sector saw sizable shift out of energy and metals into the agriculture sector where all 13 futures contracts covered in this update saw net buying. During the week the energy sector lost 2.1% while precious metals dropped 4.3% after gold broke below key support at $1830. A 1.5% rise in copper was not enough to convince speculators who cut their net long by 20%. Most noticeable however was the strong buying seen across the agriculture sector, with strong demand and weather worries more than offsetting the headwind caused by the stronger dollar. Energy: Crude oil, both Brent and WTI, were sold ahead of the coordinated SPR release announcement last Tuesday. The combined net long dropped by 14k lots to a one-year low at 514.6k lots. The loss of price momentum during the past few months has, despite an overriding bullish sentiment in the market, been driving the reduction, and following Friday's 10% price collapse these traders have been rewarded for sticking to the signals the market was sending instead of listening to bullish price forecasts. Hedge funds are not "married" to their positions hence their better ability to respond to changes in the technical and/or fundamental outlook.Metals: Having increase bullish gold bets by 65k lots during the previous two weeks, funds were forced to make 45k lots reduction last week in response to the Powell renomination sending gold sharply lower and below support in the $1830-35 area. Speculators have been whipsawed by the price action in recent weeks and it helps to explain why they are in no mood to reenter in size despite renewed support from Covid19 angst. Silver's 6% sell off during the week helped trigger a 17% reduction in the net long to 30k lots while in copper a small price increase was not enough to stem the slide in net length. Following seven weeks of selling, the net length has dropped by 64% to 19.5k lots, a 13-week low. Months of rangebound behaviour has reduced investor focus, and until we see High Grade Copper make an attempt to break its current $4.2 to $4.5 range, the level of positioning is likely to remain muted. Agriculture:  More concerned with other drivers such as weather, strong demand and supply chain disruptions helped trigger across the board buying of all 13 futures contracts split into grains, softs and livestock. The combined long held across these contracts reached a six-month high at 1.13 million lots, representing a nominal value of $43.5 billion. Buying was broad with the top three being corn, sugar and soybeans. Elsewhere the net long in Arabica coffee reached a fresh five-year high at 58k lots and KCB wheat a four-year high at 65.6k lots. UPDATES from today's Market Quick TakeCrude oil (OILUKJAN22 & OILUSJAN21) turned sharply lower in early European trading as the mood across markets soured on renewed concerns about the omicron virus strain. This after Moderna’s head told the Financial Times that existing vaccines will be less effective at tackling omicron and it may take months before variant-specific jabs are available at scale. The news come days before the OPEC+ group of producers meet to discuss production levels for January. Brent crude oil already heading for its biggest monthly loss since March 2020 trades below its 200-day moving average for the first time in a year, a sign that more weakness may lie ahead, thereby raising the prospect for OPEC+ deciding to pause or perhaps even make a temporary production cut. Gold (XAUUSD) received a muted bid overnight in response to the omicron virus comments from the head of Moderna (see oil section above). In addition, comments from Fed chair Powell helped reduced 2022 rate expectations from three to two after he said the omicron virus posed risks to both sides of the central bank’s mandate for stable prices and maximum employment. Despite this development together with softer Treasury yields and a weaker dollar, gold continues to struggle attracting a safe-haven bid. Silver (XAGUSD) looks even worse having dropped to a six-week low on weakness spilling over from industrial metals. Forex:Broad dollar buying following Fed chair Powell's renomination helped drive a 20% increase in the greenback long against ten IMM currency futures and the Dollar index to $25.4 billion and near a two-year high. All the currencies tracked in this saw net selling with the biggest contributors being euro (12.6k lots), CAD (11.8k) and JPY (4.1). The net short on the latter reached 97.2k lots or the equivalent of $10.6 billion, a short of this magnitude helps explain the strength of the sell off in USDJPY since last Thursday when safe haven demand picked up as the omicron news began to spread. Despite hitting a 16-month low last week the euro short only reached 12.6k lots, a far cry from the -114k lots reached during the panic month of February last year when the pair briefly traded below €1.08. What is the Commitments of Traders report? The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class. Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and otherFinancials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and otherForex: A broad breakdown between commercial and non-commercial (speculators) The reasons why we focus primarily on the behavior of the highlighted groups are: They are likely to have tight stops and no underlying exposure that is being hedged This makes them most reactive to changes in fundamental or technical price developments It provides views about major trends but also helps to decipher when a reversal is looming
Omicron-driven oil slump raises risk of OPEC+ action

Omicron-driven oil slump raises risk of OPEC+ action

Ole Hansen Ole Hansen 29.11.2021 13:35
Commodities 2021-11-29 12:45 Summary:  Crude oil suffered its largest one-day crash since April 2020 on Friday in response to worries the new omicron virus variant could drive renewed demand weakness at a time where the US is about to release millions of barrels of crude oil from its strategic reserves. While many have already concluded Friday's slump was an overreaction caused by thin market liquidity, the focus is once again squarely on the response from OPEC+ who will meet on Thursday to set production levels for January and potentially beyond. Crude oil suffered its largest one-day crash since April 2020 on Black Friday in response to worries the new omicron virus variant could drive renewed demand weakness at a time where the US and other major oil importing nations are about to unleash millions of barrels of crude oil into the market from strategic reserves. Equally importantly was probably the very bad timing with the news hitting the markets on a low liquidity day after the Thanksgiving holiday. Long held bullish conviction trades got stopped out as the sudden elevated level of risk aversion drove major position adjustments across most asset classes. As volatility spiked, the options market also kicked into gear with hedging of short puts adding an additional layer of pressure with sell orders being executed at whatever price available. On Friday the 30-day historical volatility jumped from below 25% to 44% and it has ticked higher today, an indication of some unfinished business from Friday, but also a market which is struggling to settle down with Thursday’s OPEC+ decision adding an additional layer uncertainty. So far today, the market is trading higher, but already off their overnight highs, but the reduction in hedge selling has allowed buyers to take a fresh look with some concluding the move on Friday was most likely an overreaction. Not least considering the prospect for support being provided by OPEC+ who may attempt to prop up prices when they meet this Thursday. The group may decide to postpone the January production increase or if necessary, temporary cut production into a period that was already expected to see the return of a balanced market. Brent crude oil’s 11.6% top to bottom slump on Friday was only arrested when the price reached its 200-day moving average at $72.70 and after the price retraced 61.8% of the August to October surge. A key reason behind that run up in prices was driven by increased switching demand from record priced gas to cheaper oil-based fuels such as diesel, heating oil and propane. Following the drop in crude oil and continued strength in gas and power prices, the prospect for continued and rising switching activity will remain a key source of extra demand that did not exist during the 2020 slump. Source: Saxo Group Adding to crude oil’s current bid are forecasts from the world’s top commodity traders, all speaking at the FT’s Global Commodity Summit, that oil prices could return to $100 over the coming years as investment in new supplies slows down with oil majors diverting capex towards renewables instead of continued oil and gas production. It highlights a potential rising dilemma where politicians and investors want to move towards renewables at a much faster pace than actual changes can be made. Thereby creating the risk of a supply shortfall before demand eventually begins to slow towards the second half of this decade. Brent crude oil has set its sight on the 2019 peak at $75.6 ahead of the downtrend (red line) from the 2008 peak. Some focus on today’s FOMC meeting which may yield a change in the interest rate outlook while the market seeks further clues about the Fed’s view on inflation, and with that the need for inflation hedges through long commodity exposure.
COT: Solid gold buying raising short term concerns

COT: Solid gold buying raising short term concerns

Ole Hansen Ole Hansen 22.11.2021 11:35
Summary:  This summary highlights futures positions and changes made by hedge funds across commodities, forex and financials up until last Tuesday, November 16. The report shows the reaction to the US inflation shock on November 11 which among others drove strong demand for gold and more surprisingly a reduction in the dollar long. Also another strong week for most agriculture commodities with positions in coffee and KCB wheat hitting fresh multi-year highs Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial. Link to latest report This summary highlights futures positions and changes made by hedge funds across commodities, forex and financials up until last Tuesday, November 16. A week where the market responded to the US inflation shock on November 11 by sending  the dollar up by 2% to fresh high for the cycle while 10-year breakeven yields jumped 20 basis point a decade high. While bond market volatility jumped, stocks held steady with the VIX showing a small decline. The commodity sector was mixed with gains in precious metals and not least grains and soft commodities helping offset weakness across the energy sector.  Commodities Hedge funds raised their total commodity exposure, measured in lots, across 24 major futures contracts by the most since July. Driven by continued strong price action across the agriculture sector and more recently also precious metals in response to surging inflation. These sectors saw all but one market being bought while the energy sector were mixed with continued selling of crude oil only being partly offset by demand for gasoline and natural gas. Energy: Crude oil’s four week slide resulted in the biggest weekly reduction since July, and this time, as opposed to recent weeks, it was WTI that led the reduction with a 10% cut to 307k apart from a deteriorating short-term technical outlook also being driven the prospect of a US stockpile release to dampen domestic gasoline prices. Brent meanwhile saw its net long slump to a one-year low at 221.5k lots, and during the past six weeks the net length has now slumped by one-third, a reduction which gathered momentum after the late October failure to break the 2018 high at $86.75, now a double top. Crude oil comment from our daily Market Quick Take: Crude oil (OILUKJAN22 & OILUSDEC21) opened softer in Asia after Friday’s big drop but has so far managed to find support at $77.85, the previous top from July. The market focus has during the past few weeks shifted from the current tight supply to the risk of a coordinated reserve release, fears about a renewed Covid-driven slowdown in demand and recent oil market reports from the EIA and IEA pointing to a balanced market in early 2022. Having dropped by around 10% from the recent peak, the market may have started to conclude that a SPR release has mostly been price in by now. Metals: Another week of strong gold buying has now raised the alarm bells given the risk of long liquidation should the yellow metal fail to hold onto its US CPI price boost above $1830. Last week the net long in gold reached a 14-month high at 164k lots and the speed of the accumulation, especially the 70% jump during the past two weeks alone carries, will be raising a red flag for tactical trading strategies looking for pay day on short positions should support give way.  Gold extended Friday’s drop below $1850 overnight, before bouncing ahead of key support in the mentioned $1830-35 area. The risk of a quicker withdrawal of Fed stimulus supporting real yields and the dollar has for now reduced gold's ability to build on the technical breakout. However, the price softness on Friday helped attract ETF buying with Bloomberg reporting a 10 tons increase, the biggest one-day jump since January 15. A second week of silver buying lifted the net to a four-week high at 35.9k lots, but still below the May peak at 47.8k lots. Copper’s rangebound trading behavior kept the price and the net long unchanged. The latter due to an even size addition of both new long and short positions. Agriculture: Broad gains across the grains market lifted the combined long across the six most traded contracts to a six-month high at 560k lots. Buyers returned to soybeans after the net long recently hit a 17-month low, the corn long was the biggest since May while the KCB wheat long at 60.6k lots was the highest since August 2018. Supported by an increasingly worrying supply outlook, coffee speculators lifted their net long by 16% to a five-year high at 55k lots. Cotton and sugar longs also rose while short-covering helped halve the cocoa net short. More on the reasons behind the current strength in wheat and coffee, and agriculture in general can be found in may recent update: Agriculture rally resumes led by coffee, wheat and sugar ForexIn a surprise response to the US inflation shock on November 11 speculators ended up making a small reduction in their overall dollar long against ten IMM futures and the Dollar index. Selling of euro in response to the 2.4% drop and a 161% increase in the sterling short to a 17 month high ended up being more than off-set by the buying of all other major currencies, most notably JPY and CHF. The result being a fifth weekly reduction in the dollar long to $21.3 billion, now down by 17% reduction from the near 30-month high reached during October. What is the Commitments of Traders report? The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class. Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and otherFinancials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and otherForex: A broad breakdown between commercial and non-commercial (speculators) The reasons why we focus primarily on the behavior of the highlighted groups are: They are likely to have tight stops and no underlying exposure that is being hedged This makes them most reactive to changes in fundamental or technical price developments It provides views about major trends but also helps to decipher when a reversal is looming
Agriculture rally resumes led by coffee, wheat and sugar

Agriculture rally resumes led by coffee, wheat and sugar

Ole Hansen Ole Hansen 18.11.2021 16:35
Summary:  The cost of your breakfast and food in general continues to rise, and following a few months of sideways trading, the Bloomberg Agriculture index, which tracks a basket of major food commodity futures, reached a fresh five-year high this week. Apart from troubled weather reducing available supply there are several other reasons playing a their part and in this update we take a look at some of those, including the reasons why coffee and wheat are two of the hottest food commodities this year. The cost of your breakfast and food in general continues to rise, and following a few months of sideways trading, the Bloomberg Agriculture index, which tracks a basket of major food commodity futures, reached a fresh five-year high this week. The table below shows the commodities with the biggest impact this year has been led by coffee, edible oils, wheat and sugar. There are individual reasons behind the strong gains, but what they all have in common has been a troubled weather year, a post pandemic jump in demand leading to widespread supply chains disruptions and more recently rising production costs via surging fertilizer prices and rising cost of fuels, such as diesel. The La Ninã weather pattern which can lead to floods, drought and cooler temperatures around the world returned to haunt producers this year, and recent forecasts say it will prevail through the coming northern hemisphere winter. In large swathes of South America and parts of North America a La Ninã is normally accompanied by drought, whereas in Australia and parts of Southeast Asia it is often resulting in heavy rainfall. Fertilizer prices have skyrocketed during the past few months as a result of soaring natural gas prices which have forced some European production plants to halt or reduce production. Fertilizer indices tracking prices in North America and Western Europe both trades more than 200% above their five-year averages. The surge has raised concerns farmers may reduce their usage of fertilizers or shift more acres into crops that require less nutrients. A drop in yields could drive prices even higher, thereby worsening already strong food inflation. Supply chain problems/disruptions: We are all familiar with stories about port congestion, lack of containers and surging prices on all the major routes around the world, especially from the production hub in Asia to major ports in Europe and the U.S. These problems began as a result of the pandemic which initially drove a major amount of order cancellations before the world a few months later went on a massive spending spree for consumer goods as the service sector grinded to a halt. These developments together with port disruptions due to continued Covid outbreaks helped trigger disruptions that to this day continue to cause problems for shippers of goods, including many of the food commodities that are transported in special containers. Arabica coffee trades at a nine-year high at $2.38 per pound with the supply outlook looking increasingly tight following an annus horribilis in Brazil where frost and drought dealt a blow to the 2021 crop. In addition to weather, the market also had to deal with lack of shipments and high container rates, surging fertilizer prices and roasters in Europe struggling to source supplies from alternative producers in Columbia and Vietnam. If that wasn’t enough, there is now also a growing risk of civil war in Ethiopia, the world’s third biggest grower of the Arabica bean. What may prove to be even worse over the coming months is that the flowering, or lack of, for the 2022 on-season crop is pointing to another low production year. The break above $2.25, the 2014 high may signal a market running towards $3, a record level that was last seen in 2011. Wheat: From a global food security perspective, the ongoing rally in global wheat prices is an even bigger concern. This week we have seen Chicago wheat futures climb to their highest level in nine years, while here in Europe, the benchmark Paris Milling Wheat contract trades just below €300 per tons, its highest price ever. Just like coffee, weather worries are the main driver, following a poor harvest in North America together with a year-on-year decline in exports from Russia, the world’s largest shipper. These developments have triggered increased demand for European sourced wheat, and with the prospect of another potentially challenging crop year in 2022 caused by weather and high fertilizer costs, some of the major importers have recently been stepping up their pace of purchase in order to cool local food prices, and to secure supplies ahead of winter. With buyers increasingly competing for supplies the market will look for some relief from the upcoming and promise-looking harvests in Argentina and Australia, taking place from now until January. One of the most actively traded ETF tracking the agriculture sector, the Invesco DB Agriculture Fund, broke higher last week to reach a four-year high. The index tracks the performance of 11 major futures markets spread across grains, softs and livestock. Source: Saxo Group