Speculators turn to crude oil and natural gas


Market Commentary from Today’s Market Quick Take:

Crude Oil (OILUSFEB22 & OILUKMAR22) Trades Mixed with Brent Crude Briefly Challenges Double Top at $86.75, a Seven-Year High, Before Repricing as China’s GDP and Retail Sales Slow as part of ongoing measures to curb the spread of the omicron variant.

Early spreads on WTI and Brent remain elevated at 63 and 74 cents per barrel, signaling growing tension. Later this week, monthly oil market reports from OPEC on Tuesday and IEA on Wednesday will shed additional light on the current situation. Speculators, somewhat behind the recent rally, boosted bullish oil bets on WTI and Brent by the most in 14 months last week.

Copper (COPPERMAR22) fell the most in seven weeks on Friday as weaker-than-expected US economic data (see below) as well as weakness in China added to fears that global growth could slow amid rising inflation and spread of virus. High Grade’s drop below $4.50 triggered stop loss selling from recently established longs before stabilizing overnight after China, the world’s biggest consumer, cut rates to support its economy. Concern over tighter supplies has not gone away, however, and should cushion any short-term weakness.

Gold (XAUUSD) remains resilient despite bond yields surging again on Friday as the market continues to price in the prospect of US interest rates rising, potentially at a more aggressive pace than expected. Support continues to build in the $1800 area, while a break above $1830 could target $1850 ahead of the November high at $1877.

Forex

In forex, the main flow was the sale of JPY, where the net short position increased by 25,300 lots or the equivalent of $2.7 billion. The further selling of AUD (-2.1k lots) took the net short position to a new all-time high at 91.5k lots. The EUR position returned to net after speculators bought 7,600 lots while the GBP short position was reduced by 26%. Overall, the dollar was long against ten IMM currency futures and the Doller Index rose a small 1% to $23.5 billion.

What is the Merchant Engagements Report?

COT reports are published by the US Commodity Futures Trading Commission (CFTC) and ICE Exchange Europe for Brent crude oil and diesel. They are released every Friday after the US closes with data for the week ending the previous Tuesday. They break down open interest in futures markets into different user groups based on asset class.

Commodities: Producer/Merchant/Processor/User, Swap dealers, Money Managed and other

Finances: Concessionaire/Intermediary; Asset Manager/Institutional; Leveraged funds and other

Forex: A wide split between commercial and non-commercial (speculators)

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

  • They are likely to have tight stops and no underlying exposure who is covered
  • It makes them most responsive to change in the fundamental or technical evolution of prices
  • It offers views of big trends but also helps to decipher when a reversal is imminent
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