net long

The Commodities Feed: The need for a risk premium The oil market has opened slightly stronger this morning and this is no surprise given recent developments in Russia. However, the failed move by the Wagner group suggests that any upside in prices will likely be limited.   Energy - Russia instability offers limited upside to oil It was shaping up to be an interesting opening for oil given developments in Russia towards the end of last week. However, the Wagner group's insurrection came to an end as quickly as it started thanks to a deal brokered by Belarus’ Lukashenko. As a result, oil has only seen limited gains so far in early morning trading today with ICE Brent up a little over 1%. While the immediate supply risks have disappeared, the market will likely have to start pricing in a larger risk premium for oil given the growing instability in Russia. How much of a risk premium will really depend on how the aftermath of the failed insurrection is dealt with. In the US, the oil rig count has continued to trend lower. The number of active oil rigs has fallen by 6 over the last week to 546, which is the lowest level seen since April last year. The rig count has fallen by 77 since mid-January and the slowdown in drilling activity will call into question how much supply growth we will see from the US. Falling drilling activity in the US will be welcome by OPEC+ members, as in theory, it should make their output policy more effective, though demand has been a big concern for the market which has more than offset the recent cuts seen from OPEC+ members.   The latest positioning data shows that speculators increased their net long in ICE Brent by 16,116 lots over the last reporting week to 190,386 lots. This move was predominantly driven by fresh buying with the gross long increasing by 12,996 lots. However, given the price action seen since the last reporting week, we are likely to have seen some of these longs liquidate already. The net speculative long in ICE gasoil increased by 12,250 lots to 16,191 lots over the week. This was largely driven by short covering. The gross short declined by 10,319 lots over the period.  Refinery outages have been supportive for middle distillates in recent weeks and if these outages continue, there is room for further short covering.   There is very little on the agenda for energy markets this week with the exception of the regular weekly releases.

The Commodities Feed: Specs reduce oil net long Oil finished last week on a strong footing, however, it has come under some pressure in early morning trading today. Trading is likely to be thinner than usual at the start of the week due to Independence Day in the US on Tuesday.   Energy - specs trim their net long Having had a relatively strong end to the week, which saw Brent settle back above the US$75/bbl level, the oil market is under some pressure in early morning trading today. We may have officially moved into the second half of the year, but the market still has the same concerns which plagued it over much of the first half of the year. And the biggest problem at the moment is the uncertain demand outlook. Speculators are clearly still hesitant about the outlook and this was reflected in the latest positioning data, which shows that speculators reduced their net long in ICE Brent by 30,586 lots to 159,800 lots over the last reporting week. This was driven by a combination of longs liquidating and fresh shorts entering the market. The gross short position increased by 18,331 lots. CFTC data also showed that speculators cut their net long in NYMEX WTI  by 35,257 lots over the last reporting week, leaving them with a net long of just 71,543 lots. This is the smallest net long speculators have held in WTI since March when we saw prices trading briefly below US$65/bbl. Given the strength in the domestic gasoline market, Russia is reportedly looking to take measures to increase domestic supply. The deputy prime minister has told oil companies to prioritise the domestic market over exports. If the situation requires it, the government will look into potentially imposing export quotas for the fuel. This is not the first time that there have been suggestions of export limits. There was noise back in May that the government could take such action. Bloomberg reports that this week, the US Department of Energy (DoE) will announce its intention for further purchases of crude oil for the Strategic Petroleum Reserve after the significant releases seen through 2022. So far this year, the DoE has tendered for around 6MMbbls of crude oil and there are suggestions that the DoE will look to buy in the region of 12MMbbls over the course of the year. As for the calendar this week, OPEC’s International Seminar kicks off on Wednesday and will run for 2 days. We can expect to hear further noise around OPEC+ policy during the event, with the Saudi energy minister set to give a speech. It is also expected that Saudi Aramco will announce its official selling prices for August loadings sometime this week, and there is also the potential for further news on whether Saudi Arabia will roll over its additional voluntary cut of 1MMbbls/f into August. The market is expecting that they will do so.

Agriculture - Specs increasingly bearish on corn The latest CFTC data shows that money managers increased their net short in CBOT corn by 45,924 lots to 72,580 lots over the last reporting week. Improved crop conditions in the US have eased some concerns over the US corn crop. It is a similar story for CBOT soybeans, where speculators reduced their net long by 13,362 lots to 50,719 lots. Meanwhile, speculators increased their net short in CBOT wheat by 10,195 lots to 65,590 lots. Clearly, the market is not overly concerned about Ukrainian grain flows, with strong supply growth elsewhere this season, particularly when it comes to corn. Recent trade numbers from China Customs show that sugar imports fell 60.5% YoY to 110kt in July, whilst cumulative imports declined 41% YoY to 1.2mt in the first seven months of the year. Earlier, 2022/23 sugar import estimates were cut, a trend that we are seeing across a number of key importers, with higher global prices seeing a number of countries drawing down domestic inventories instead.

The Commodities Feed: Oil fundamentals remain supportive The oil market remains well supported on the back of constructive fundamentals, and Russia’s ban on diesel and gasoline exports also adds support. The calendar this week is looking fairly quiet.   Energy - Speculative appetite grows The oil market has held relatively steady in recent days with tightness in the physical market coupled with Russia’s recent export ban on diesel and gasoline offset by a fairly hawkish FOMC meeting last week. As a result, Brent continues to hold above US$93/bbl. Speculators continue to become more constructive towards the market with the speculative net long in ICE Brent growing by 17,904 lots over the last reporting week to 265,531 lots as of last Tuesday. This is the largest net long speculators have held since March, and the increase over the week was predominantly driven by short covering. Similarly, speculators increased their net long in NYMEX WTI by 15,084 lots over the reporting week to 294,396 lots - the largest position held since February last year. However, speculators cut their net long in ICE gasoil, which fell by 6,940 lots over the week to 59,359 lots as of last Tuesday. The current net long is likely somewhat larger than this, given the move seen in the gasoil market following Russia's ban on diesel and gasoline exports. As we mentioned in our note last week, while the ban only reinforces our supportive view on middle distillates, we do not believe it will remain in place for long, given the domestic storage constraints that will be soon faced by not allowing roughly 1MMbbls/d of diesel exports. The latest data from Baker Hughes shows that the US oil rig count fell by 8 over the last week to 507. This is the first weekly decline in 3 weeks and sees a resumption in the fall we have seen for much of this year. The number of active oil rigs has fallen by 114 rigs since the start of the year. The fall in rig count this year is what has given OPEC+ the confidence to cut output without having to worry too much about losing market share to non-OPEC producers. European natural gas prices managed to settle more than 9% higher over the course of last week. This is despite strike action at Australian LNG facilities coming to an end, along with Norwegian gas flows continuing to recover as capacity at the Troll field returns following maintenance. With EU storage almost 95% full and supply risks subsiding, we would expect to see some downward pressure on the front end of the curve.