COT: Crude oil and gold supported by short covering

Energy

Money managers responded to surging crude oil prices on heightened speculation about a 2 million barrels per day cut in OPEC+ production by lifting the net long position in WTI and Brent crude oil by 47k lots to 375k lots, a ten week high. The change was driven by 32k lots of fresh longs and a 15k lots reduction in the gross short. Wednesday’s controversial decision by the group of producers to cut baseline production by 2 million barrels per day from November will likely translate into an actual reduction of around 1 million barrels per day with several producers led by Nigeria, Kazakhstan and not least Russia currently producing well their baselines and as a result will not have to cut. The decision nevertheless helped drive Brent up by 15% on the week as the decision will increase the tightness just before Russia’s production look set to fall further as the EU embargo starts on December 5.

All three fuel contracts jumped by more than crude oil, led by gas oil’s 14% rally driven by low stocks and concerns about winter tightness, and as a result money managers were forced to cut recession-focused short positions. In total, 12k lots of short positions were closed while the gross long received a 6k lots boost.

Metals

Short sellers across the metal sector suffered a major setback after sharp drops in the dollar and yields helped drive prices sharply higher, not least silver and platinum which ended the reporting week higher by 15% and 11% respectively. Gold jumped almost 6% with a combination of strong support at $1615, the 50% retracement of the 2018 to 2022 rally together with the mentioned dollar drop triggering a 24% reduction in the gross short and 21% increase in the gross long. Overall the position changed by 46k lots from the biggest net short in almost four years to a small net long of 5k lots.

This was a classical short covering bounce but with the outlook for the dollar and yields still being dictated by signals from the US Federal Reserve, the risk of a fresh setback remains, but potentially shallower with short sellers being less inclined to aggressively short the metal after last week's drubbing.

The silver net long jumped by 189% to 15.2k lots and highest since June, thereby continuing the price recovery from September’s two-year low at $17.40. Copper, which has provided a great deal of price inspiration to silver this year, rallied by more than 6% and the move helped trigger a 77% reduction in the net short to just 2.5k lots, the lowest conviction that prices will fall in four months.

Agriculture

The grains sector was mixed with selling of soybeans and soybean meal more than offsetting continued demand for corn and wheat. The soybean net long slumped by 18% to 77.5k lots and was the lowest since December following the release of the USDA’s quarterly stocks report, which showed higher-than-expected old-crop soybeans. Corn and wheat received a boost from lower-than-expected stocks with Ukraine supply concerns adding an additional layer of support to wheat.

Softs were mixed with a 25% reduction in the cocoa short being offset by selling of sugar, coffee and not least cotton, the latter seeing continued price weakness on growth concerns drive down the net long to near a 26-month low