Speculators dump crude oil on China concerns
Concerns about the economic impact of fresh lockdowns in China and not least growing protests against the government’s handling of Covid outbreaks, saw the Bloomberg Commodity index trade down 1% with a 3.2% loss across the energy sector being only partly offset by gains in precious and industrial metals, as well as grains. Hedge funds, responding to these developments, sold energy led by Brent crude oil while small amounts of profit taking reduced length in gold, copper and sugar. In demand were silver, soybeans, corn and coffee.
Overall, the net long across 24 major commodity futures saw a small 2% reduction to 1.13 million contracts representing a notional value of $68 billion. The total open interest across the 21 most traded futures contracts meanwhile dropped to a fresh and near ten-year low at 12.69 million lots. Led by a slump in energy where the short-term outlook has become increasingly murky as recession concerns battle Russian sanctions impact and OPEC+ production cuts. Since peaking at 8.7 million lots on January 28, the open interest across the six major energy contracts tracked in this has slumped by 30% to the current 6.1 million lots.
Energy
Hedge funds continued to aggressively sell crude oil futures in the week to November 29 as demand concerns from renewed China lockdowns and the general risk of an economic slowdown hurt prices and sentiment. During the last three reporting weeks the combined net long in WTI and Brent has been cut by an aggressive 187k lots or 41% to 265k lots, and lowest since April 2020 when the pandemic saw prices collapse.
The bulk of the reduction last week was seen in Brent where the combination of 21k lots of long liquidation and 18k lots of fresh short position drove a 28% reduction in the net long to 99k lots. driven by 39k lots reduction in the Brent crude net long to 99k. Additional, but muted long liquidation also helped reduce the net long positions in gasoil and RBOB gasoline.
Information Source: Read More By Ole Hansen, Head of Commodity Strategy at Saxo
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