Speculative positioning ahead of Friday’s Omicron dump

energy

Crude oil, both Brent and WTI, were sold ahead of the coordinated announcement of the SPR release last Tuesday. The combined net long fell 14,000 lots to a one-year low of 514,6,000 lots. The loss of price momentum over the past few months has driven the decline despite largely bullish market sentiment, and after Friday’s 10% drop in prices, these traders were rewarded for sticking to the signals the market was sending instead of listening to bullish price forecasts . Hedge funds are not “married” to their positions, so they are better able to respond to changes in the technical and / or fundamental outlook.

After bullish gold bets were raised by 65,000 lots in the past two weeks, funds were forced to cut 45,000 lots last week in response to Powell’s renomination that put gold well below and below support in the $ 1830-35 range sent. Speculators have been overwhelmed by the price movement over the past few weeks and it helps explain why, despite renewed support from Covid19 fear, they are not in the mood to get back into size. Silver’s 6% sell-off during the week helped reduce net long by 17% to 30,000 lots, while a small rise in copper price was not enough to stem the decline in net length.

After seven weeks of selling, the net length is down 64% to 19.5k lots, a 13-week low. Months of area-bound behavior have reduced investor focus and until we see high grade copper try to break its current range of $ 4.2-4.5, positioning is likely to remain subdued.

Agriculture

Heightened concerns about other factors such as weather, strong demand and supply chain disruptions helped buy all 13 futures contracts, which are broken down into Grain, Softs and Cattle, across the board. The combined long hold of these contracts hit a six-month high of 1.13 million lots for a face value of $ 43.5 billion. The purchases were broad, with the top 3 being corn, sugar and soybeans. Elsewhere, the net long position in Arabica coffee reached a new five-year high with 58,000 lots and KCB wheat a four-year high with 65,6,000 lots.

UPDATES from today Market-fast take

Crude Oil (OILUKJAN22 & OILUSJAN21) fell sharply in early European trading as sentiment turned sour on renewed concerns over the Omicron virus strain. This came after the head of Moderna told the Financial Times that existing vaccines will be less effective in fighting Omicron and that it may take months for variant-specific vaccines to become widely available.

The news comes days before the OPEC + producer group meets to discuss January production levels. Brent crude, which is already recording its largest monthly loss since March 2020, is set to cut production temporarily for the first time in a year, trading below its 200-day moving average.

Gold (XAUUSD) received a muted offer overnight in response to Moderna’s boss comments on the Omicron virus (see oil section above). Additionally, comments from Fed Chairman Powell helped cut interest rate expectations from three to two in 2022 after he said the Omicron virus posed risks to both sides of the central bank’s mandate for stable prices and maximum employment.

Despite this move, along with weaker Treasury yields and a weaker dollar, gold continues to struggle to attract a safe haven offer. Silver (XAGUSD) looks worse after falling to a six-week low on weak industrial metals.