Futures prices for oil and other commodities have been dropping consistently, largely due to a drastic decrease in demand from China. Traders are very scared — very bearish — because of this trend. Hedge funds, veiled investors and international speculators are now actively reconsidering their positions in world markets. Broader implications Beyond a humanitarian catastrophe, the situation speaks to a changing reality in global commodity trading, especially for oil and grains.
In recent months, as we have highlighted, China’s appetite for oil has waned significantly. Combined with reports that Chinese demand for commodities, including Chinese demand for oil, has cooled off, it’s put traders on edge. Meanwhile, Beijing is redirecting its overall industrial policy focus toward electric vehicles (EVs). As a result, net long positions on U.S. crude futures have recently plunged to an all-time low, the lowest level in nearly 15 years. A negative trade sentiment due to unresolved US-China trade deal as traders’ conservatism adds fuel to the bearish outlook.
The feeling in the commodities market is a bit electric right now, as trader and hedge fund eyes are all glued to these storylines. The further drop in net long positions marks a notable and major sea change in the market. Speculators and commodities traders are quickly changing their playbooks amidst demand from China facing likely curtailed consumption. This new reality goes beyond oil. Perhaps nobody understands the effects of this bearish sentiment better than grains.
This trend has deeply tangible implications on the commodities market. The recent drop in futures prices indicates that demand is waning. Traders today find themselves in an extremely competitive environment in which to adapt to these changes. The resulting bearish sentiment has caused a downward spiral, affecting market tactics as well as projections for future commodity pricing.
As the new environment develops, it is anyone’s guess as to how long this newly bearish market will last. Traders and hedge funds are keenly observing developments in China, especially regarding policies that could influence energy consumption and trade relations. What’s more, the country is doubling down on electric vehicles (EVs). With trade tensions likely to persist at least in the short term, prospects for commodity markets remaining volatile are high.