COT: Commodity demand remains strong despite growing uncertainty

Commodity sector:

Crude oil: Despite some emerging price weakness that accelerated last Wednesday, the day after the reporting week ended, the buying of crude oil extended to a third week. The total net long in WTI and Brent rose 21.9k lots to 454k lots. Fresh longs drove the bulk (93%) of this increase, but they were left vulnerable to the correction that followed. This concluded a five-week roundtrip that saw a combine 232k lots of WTI and Brent being sold as the banking crisis drove a technical-driven sell-off before OPEC+ production cuts supported a 213k lots reversal.

For natural gas, the attempt to rally from the current $2 floor has been so far futile. However, it helped support a reversal of the positions held across four Henry Hub deliverable swaps and futures contracts to the first net-long in ten months. The combination of a year-to-date decline of around 50% and an elevated contango, which favors those holding short positions, has been a major obstacle preventing a sustained recovery.

Gold: A second week of net selling, this time primarily driven by an increase in the gross short following the failure to break above $2050, saw the net long reduced by 3.3k lots to 134k lots. The total 10.7k lots net reduction seen during the past two weeks, however, remain very small compared with the 121k lots that was added in the month that followed the banking crisis. Highlighting a market that would need to see and even bigger correction in order to trigger any forced long liquidation, a risk that remains relatively small as long gold holds above support in the $1955-60 area.

Platinum: Speculators responded to a 9% rally and a significant narrowing of the discount to gold by lifting the platinum net-long by a substantial 12.8k lots to 18.4k lots. This is the biggest one-week addition of length since September 2019. The change was driven by equal measures of fresh longs and short covering, and it highlights a metal that up until now has been under-owned as investors instead focused on gold and silver. The continued momentum last week continued to yield fresh longs, not least on Friday when the closed at $1127, a 13-month high. In the short-term developments that may raise the risk of pullback should the technical and/or fundamental outlook turn less bullish.

HG Copper: In response to the upside break during the reporting week, and which later on failed, the copper long jumped 230% to 19.8k lots. This highlights a market where traders are worried about missing the upside once it materializes, but also how failure turns to immediate long liquidation and with that, fresh price weakness as seen last Thursday and especially Friday. For now, the metal remains rangebound, having returned to the center of its current $3.8 to $4.2 trading range. However, with global visible exchange monitored stocks at the lowest seasonal level since 2008, the downside risks in our opinion remain limited.