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Speculators are switching to crude oil and natgas

Market Comments from Today’s Market Quick Take:

Crude Oil (OILUSFEB22 & OILUKMAR22) is trading mixed with Brent Crude, which briefly challenged the double-top at $86.75, a seven-year high before reversing as China’s GDP and retail sales weakened amid ongoing measures to curb the spread of the Omicron variant.

WTI and Brent prompt spreads remain elevated at 63 and 74 cents a barrel, signaling increasing tightness. Later this week, the monthly oil market reports from OPEC on Tuesday and the IEA on Wednesday will shed further light on the current situation. Speculators, a bit belated in the recent rally, increased bullish oil bets in WTI and Brent bets by the highest in 14 months last week.

Copper (COPPERMAR22) slipped the most in seven weeks on Friday, as weaker-than-expected US economic data (see below) combined with weakness in China fueled concerns that global growth is slowing amid rising inflation and the spreading virus could. High Grade’s decline below $4.50 triggered some stop-loss selling from recently established long positions before stabilizing overnight after China, the world’s largest consumer, cut interest rates to support its economy . However, concerns about supply shortages have not gone away and should cushion any short-term weakness.

Gold (XAUUSD) remains resilient despite bond yields rising again on Friday as the market continues to price in the prospect of rising US interest rates, possibly at a more aggressive pace than previously expected. Support continues to build in the $1,800 area, while a break above $1,830 could see it target $1,850 ahead of the November high of $1,877.

currency

In FX, the main stream was the selling of JPY, where the net short rose by 25.3k lots or the equivalent of $2.7bn. Additional selling of AUD (-2.1k lots) took the net short to a new record short at 91.5k lots. The EUR position returned to a net long after speculators bought 7.6k lots while the GBP short was reduced by 26%. Overall, the long dollar is up a small percent to $23.5 billion against 10 IMM FX futures and the Dollar Index.

What is the Commitments of Traders report?

The COT reports are issued by the US Commodity Futures Trading Commission (CFTC) and ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the US market close with data for the week ending on the previous Tuesday. They divide open interest in futures markets into different user groups depending on the asset class.

Commodities: Producer/Trader/Processor/User, Barterer, Managed Money and other

Finance: traders/intermediaries; Wealth Manager/Institutional; Leveraged Funds and other

Forex: A rough breakdown between commercial and noncommercial (speculators)

The reasons why we mainly focus on the behavior of the highlighted groups are:

  • They probably have close stops and no underlying commitment that is secured
  • She does most reactive to change on fundamental or technical price developments
  • It offers views over main trends but also helps to decipher when a reversal threatens

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