ETF Securities Commodity ETP Weekly: Crude surges but gold still in focus as investors remain wary

Seventh week of inflows into crude ETPs, as prices rebound strongly, but the outlook is polarised. Gold the standout in precious metals sector, as global uncertainty prompts strong inflows. Copper inflows hit 2-month highs, as global asset volatility begins to fade.

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Crude inflows belie the polarised view on the outlook for oil prices. Prices have jumped over the past week after reaching multi-year lows of below US$28/bbl in January 2016. Abundant supply, being exacerbated by the Iran’s oil coming onto the market in coming months, is not a new story, and the major contributor to the ytd 9.1% price declines. Bearish investors believe that capex cuts and rising demand will be insufficient to reduce inventory build-ups and have ploughed US$24.9mn into short oil ETPs. Meanwhile, there has been continued bargain hunting in the oil market. Bullish investors believe that the oversupply is ‘baked into the cake’ and have deposited US$81.5mn into long oil ETPs over the past week, the seventh consecutive week of net inflows. In contrast, futures market positioning reflects a somewhat more bullish perspective with net longs rising to a 10-week high for WTI crude. The sharp move higher last week reflected market rumours that Russia could join OPEC forces to restrain supply, thereby contributing to a more balanced market.

Month-long inflows show investors continue to look at gold for defensiveness. Gold continues to be an investor favourite as uncertainty over the global growth and the outlook for cyclical assets remains elevated. Gold’s defensive properties – historically the precious metal rallies during periods of equity market weakness – continue to be what investors are looking to gain exposure to. Physical gold ETP flows totalled US$35.6mn last week, the 4th consecutive weekly inflow, on the back of a 1.6% price rise. Gold remains the standout in the precious metals sector, with inflows of US$150mn ytd, compared with modest outflows in silver and platinum group metal ETPs. Nonetheless, platinum staged a 8.5% rally and ETPs garnered the first inflows in six weeks, totalling US$4.8mn.

Cotton drives the largest outflows from agricultural ETPs in over six months. The vast majority (US$19.3mn) of the outflows from agricultural products, totalling US$21.5mn, accrued to cotton ETPs last week. Investors appear to be managing exposures ahead of US planting intentions reports scheduled next week to be released by The National Cotton Council and USDA projections at end-Feb.

Copper inflows the highest in eight weeks. Investor panic appears to be fading, with investors depositing US$4.0mn into long copper ETPs last week. With the exception of nickel, all industrial metals have staged a rebound, with zinc (the best performer) up 5% and copper up 2.4 last week. Short copper flows dried up last week and The International Copper Study Group forecasts a supply deficit of 0.5% this year, which will be the 6th consecutive year of s supply deficit.

Key events to watch this week. Post the Federal Reserve’s dovish statement last week, January jobs numbers in the US will give a clue as to whether hawks can stick to their ‘March rate hike’ guns. The Bank of England also holds its policy meeting and give further clarity to how central banks are viewing the oil price slump (in the context of inflation expectations) now that it has rebounded quite sharply.


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