Another week of extreme crude oil volatility, this time a 22% downward move, led to a second weekly reduction in the net long WTI and Brent combination from 23,000 lots to a four-month low at 411,000 lots and just above 400,000 lots. reached in early December when crude oil briefly traded below $70/bbl in response to the omicron virus variant. Brent, the global benchmark, saw its long sharp fall to a 16-month low at 153,000 lots.
As mentioned, when volatility spikes and traders are faced with increasing margin calls on their open futures positions, the first reaction is to cut across the board. This is currently very visible in the five oil and gas contracts which saw open interest drop from 7.1 million lots on March 12 to a current seven-year low of 4.7 million lots.
Crude Oil (OILUKMAY22 & OILUSAPR22) hit a one-week high in Asia as the war in Ukraine keeps global supply very tight with traders mostly on self-penalty shunning Russian crude, currently on offer at nearly $30 below Brent with limited buyers queuing for cheap cargo.
Additionally, tensions in the Middle East have also increased after Houthi rebels attacked sites across Saudi Arabia over the weekend. With supply tightening, the market will be looking for signs of demand destruction, primarily due to the cost of diesel and gasoline as well as the impact of temporary covid-related lockdowns in China.
Gold’s recent surge towards the 2020 all-time high and subsequent sharp rejection contributed to a 5.5% correction and with it a relatively small 16% reduction in the net long position to 147.5,000 lots , the first weekly reduction in six weeks. Small in the sense that gold almost returned all of its gains after the invasion.
With most of the reduction being due to a lengthy sell-off and very limited new short selling, this highlights a shift that was driven primarily by leveraged traders being forced to cut bullish bets. Other significant changes were a 41% reduction in the long platinum position and a 31% reduction in the long copper position to 29,000 lots and just below the average size of positions held by the funds. leverage over the past year.
Trading in gold (XAUUSD) and silver (XAGUSD) is flat as investors continue to weigh the tightening of monetary policy in the United States against the inflationary impact of the Russian-Ukrainian war. The lengthy sell-off of leveraged funds that had loaded onto gold futures in recent weeks may have run its course, as longer-term focused investors continue to buy ETFs on gold since the start of the war.
During this period, total holdings jumped 134 tons to a one-year high of 3,246 tons, with more than half of the increase seen during the recent correction to $175. Gold is bought as a hedge against high inflation and a central bank policy error with slowing growth potentially preventing the FOMC from making the expected number of rate hikes before being forced back to a period renewed revival. Key support at $1890/oz with a break above $1957 needed to signal further upside potential
Coffee’s long liquidation accelerated as it stretched into a fourth week, with net long dropping 26% to an eight-month low of 29,000 lots. In sugar, small reductions of 4.8,000 lots followed the massive jump of 79.5,000 lots the previous week.
Cereals was the only sector to record net buying and after four weeks of continuous buying, the total length of the six contracts tracked hit a ten-year high of 803,000 lots. With the bulk held in the soybean (363,000) and corn (373,000) complex, with wheat’s recent surge to record highs only attracting a 67,000 lot position in the Kansas wheat contracts and from Chicago.