Futures prices for both oil and grains are crashing. Falling profit margins and rising stocks of these commodities are leading traders to respond to falling demand from China, the world’s largest consumer of hard commodities. According to new market analysis by the U.S., hedge funds and other speculative traders are building up more bearish positions on external commodities. Even further, they imagine prices will keep going down.
A big drop in Chinese purchases of oil and agricultural products has fueled the about face. This sharp drop is producing some dramatic dynamics in the market. Media reports indicate that net long positions on U.S. crude futures have fallen to eight-year lows. They’re all now at nearly 15-year lows. This sharp drop has left many traders worried, as they keep a close watch on the changing fortunes of the commodities market.
There are a number of causes leading to the continued decline in demand from China. Beijing is taking a zealous, multi-pronged approach to electrifying the nation’s roadway fleet. In fact, this move will have a tremendous impact on the nation’s dependence on proven – read: dangerous – oil consumption. The intensifying war on global trade has made things even more complex. They are resulting in disrupted trade flows and lower consumption rates in China.
As Chinese demand starts to taper off, it’s sending shockwaves across the commodities market. The bearish sentiment among traders is starkly illustrated in the cratering futures-of-oil and futures-of-every-grain fortunes. Traders are out there furiously paddling to reposition their sails and ride the new market winds. To some, this cautious approach would be surprising given the prevailing uncertainty surrounding future commodity prices.
Hedge funds and market analysts alike are walking on eggshells as they watch the developing situation. Notably, these trends might seriously alter the state of global commodity markets. The sharp change in net long positions is a sign of increasing pessimism about overall supply and demand balances. This is especially critical as China’s influence on global consumption patterns is key.