Last week, oil saw a rebound; momentum looks to have diminished towards the end of the week and this morning. It is noted that Brent traded below USUS$40/bbl early last week which isn’t a surprise. Speculators sold 39,875 lots over the week which left them with a net long of 81,292 lots last Tuesday.
This decline was brought on by an accumulation of fresh shorts and longs to liquidate. So far this has been the smallest position that speculators have held since the end of March this year. This indicates that more speculative selling will most probably be limited because fundamentals are a lot more constructive than what was witnessed in the late 1Q20 and over 2Q20.
In other news, it looks as though we may witness Libyan oil supply coming back to the market sooner rather than later. Libya’s National Oil Corporation said it would “ lift force majeure at ports and facilities it thought were safe, while facilities, where fighters are still present, will remain shut” on Saturday.
This statement was made after commander Khalifa Haftar in Eastern Libya said he would get rid of the export blockage which has been in effect for eight months and as a result brought Libyan output pretty much to a complete standstill.
Rumors have always surfaced that operations at Libya’s largest oilfield, Sharara have in fact already restarted and production will soon resume. It’s important to note that the oil market globally is in a very fragile state, given recent political and economic events. The slower than expected demand will mean that additional supply will only make efforts from OPEC+ which will rebalance the market.
Moving on to metals, base metals prices have edged a little higher this morning, copper reached an intra-day high of US$6,878/t (highest since June 2018), which has been supported by the ongoing weakness in the USD index and the US unemployment data that came out last week which was, dare we say it, better than expected.
The concerns surrounding near-term availability forced the LME copper cash/3m to spread into a much deeper backwardation of USS$40.25/t (highest since March 2019) on Friday.
It has been reported that China Solid Waste and Chemicals Management Bureau issued the twelfth batch of scrap import quota for 2020 on Friday. A total of 136.34kt of copper scrap will be allowed to enter China. It’s interesting to note that the latest agreed scrap import quota was much higher if we compare it to the previous allowance of 14.53kt. Year-to-date total scrap quota allowances now stand at 879kt.
CFTC data has shown that speculators increased their net long position in COMEX copper by 7,510 lots throughout the duration of last week, which has left them with a net long of 76,697 lots since last Tuesday.
And lastly, on precious metals, speculators increased their net long in COMEX gold by 10,662 lots, leaving them with a net long of 165,251 lots as of last Tuesday.