Oil gains further as rig counts indicate a potential slow down
Baker Hughes reported last week that oil rigs in the US increased by 2 to 765 in the previous week. Even though the reports indicated an increase, the addition of vertical rigs is considered a small addition to the current supply. Crude Oil seemed to draw support from the report as the rigs count slowed down to an average of just 5 in the past month which is the slowest gain since November 2016. The pace of addition is likely positive for prices are oil drillers in the US feel the pressure as prices remain subdued for a longer period. The focus now shifts back to OPEC which has indicated a wider cut in production levels and US storage which, if drops further could provide a major boost for prices.
CFTC data indicate further decline in net length in oil positions
CFTC reported on Friday that both long and short positions in crude oil dropped 4,793 and 21,774 contracts respectively with the net long positions now standing at 358,025 contracts. Net short positions for Natural Gas increased by 13,838 contracts to 33,878 in the previous week. Net positions for precious metals were also down with Gold losing about 4,044 contracts on the long side and gaining 29,495 contracts on the short side; total net longs dropped by 33,539 to 60,260 contracts. Net length for Silver also dropped 12,270 to 14,005 long positions. The drop in short positions in the oil contracts indicates a weakening bearish sentiment in the market despite the fundamentals still being tilted to the supply side whereas, for precious metals, the significant addition in short positions contradicts the current upside in prices. Both gold and silver and expected to move higher in the short term.
Chinese economy expands; notable strength in base metals
Chinese macro economic data released on Sunday showed that the country’s GDP grew 6.9% on a YoY basis above what the market was expecting. Industrial production and retail sales expanded at the rate of 7.6% and 11% respectively in the previous month. Fixed Asset Investment in urban areas also increased 8.6% in the first half of this year indicating a strong investment scenario across the major cities. Needless to mention, a stronger Chinese economy bodes well for base metals as a group and this was already reflected in the market today with Copper, Nickel and Zinc rallying over 1.5% into the early session. Base Metals are likely in the early stages of a new bull run supported by severe supply shortages, falling stocks and increasing demand across developing nations.