Commodity positioning diverges: energy open interest hits a record high, while net longs in metals and agricultural products fall
As of 23 October, the value of commodity open interest tracked by JPMorgan rose for a third consecutive week, with energy contributing most of the increase; the latest published investor net long position nevertheless fell as positions in metals and agricultural products were reduced.
Original source：J.P. MorganFirst published on Unhidea：Original source date：
Key takeaway
Growth in the size of the commodity market was concentrated in energy, where higher prices and more contracts together lifted open interest value, while net longs in metals and agricultural products contracted.
Why did net longs fall as the commodity market grew?
In the week ended 23 October, the value of commodity open interest tracked by JPMorgan rose by 19.8 billion dollars week on week to 2.07 trillion dollars, its third consecutive weekly increase. Energy rose by 39.2 billion dollars, exceeding the net increase across the entire market; metals and agricultural products fell by 13.4 billion dollars and 7.6 billion dollars, respectively.
Open interest value is calculated using the number of contracts, contract size and latest prices, so rising prices also increase the figure. Estimated net inflows across the market for the week, based on changes in contract numbers, were 12.9 billion dollars, a different measure from the increase in value.
A separate measure of investor net longs fell by 14.8 billion dollars week on week to 206.6 billion dollars in the latest published data, a decline of about 7%, mainly weighed down by metals and agricultural products. This measure aggregates the net positions of certain investor categories and differs in scope from open interest value, which covers all types of traders.
Why was energy the main source of growth?
In the week ended 23 October, energy open interest value rose 4% week on week to a record approximately 1.03 trillion dollars, while the change in contract numbers corresponded to net inflows of approximately 15.7 billion dollars. Growth in crude and refined product value was driven mainly by prices: ICE Brent rose 6% for the week and ICE gasoil rose 5.6%.
Natural gas open interest value rose 5% week on week to 281 billion dollars, with European TTF and Asian JKM prices rising 7% and 6% respectively, alongside net contract inflows of 4.4 billion dollars. Colder weather in northwestern Europe and the UK lifted heating demand; however, the increase in coal and lignite use for power generation exceeded that of natural gas.
JPMorgan believes Brent's premium of nearly 20 dollars per barrel over fair value is more likely due to geopolitical risk than to freight costs passing directly through to Brent prices. Higher freight costs mainly alter physical crude differentials: the free-on-board value of crude shipped over long distances falls, while refiners' landed costs rise.
Where were position reductions in metals and agricultural products concentrated?
In the latest published data, precious metals net longs fell by 5 billion dollars week on week, including a 3.9 billion dollar decline in gold; base metals net longs fell by 6.3 billion dollars, of which copper accounted for 4.8 billion dollars. Meanwhile, in the week ended 23 October, precious metals open interest value fell 4% to 271.6 billion dollars, but the change in contract numbers corresponded to net inflows of 1.5 billion dollars, mainly into silver.
JPMorgan's momentum model shows that long-term price momentum signals for COMEX gold and silver turned to sell during the week; silver's short-term indicator had reached a negative extreme, suggesting the selling trend may be nearing exhaustion.
Agricultural market open interest value fell 2% week on week to 409 billion dollars, a two-month low. Grain and oilseed prices fell, and contracts saw net outflows of 4.7 billion dollars; the peak of the US harvest and speculation about the opening of the Black Sea grain corridor prompted producers to sell and investors to take profits. The bank considers the corridor unlikely to open.
What does the latest model suggest about position changes?
JPMorgan QDS's model as of 23 October estimates that commodity investor net longs fell a further approximately 1.5 billion dollars from the latest published figure to 205.1 billion dollars. In the model, gold fell by approximately 4.1 billion dollars, partly offset by an approximately 4.1 billion dollar increase in Brent.
When comparing figures, note the data dates: most actual positioning figures are as of 20 October, while data for TTF, European carbon allowances, the London Metal Exchange and others are as of 16 October; markets without model estimates retain their latest published values.
In published data, energy net longs rose by 1.5 billion dollars week on week: Brent and TTF increased by approximately 3 billion dollars and 3.1 billion dollars respectively, but declines in Dubai crude and New York gasoline offset part of the increase.
