ICE gasoil looks good, but NYM ULSD needs a little more time
May 13, 2024
Key Observations:
CFTC data show institutional investors engaged in a huge amount of short-covering in NYM natural gas, CBOT corn, and CBOT soybeans last week. Investors have also flipped to net long in NYM diesel and boosted their net length in CMX copper through both price and quantity levers.
More granularly, between Apr 30 and May 7, investors took their collective net short position in NYM natural gas from –103,768 contracts to –57,266 contracts. Even so, the short leg on May 7 was $1 billion larger than on Apr 30 as swift advances in price worked faster than the derisking. Given the improving fundamental condition for gas worldwide, these facts suggest more short covering lies ahead. This conclusion jibes with NG1's +7% intraday advance today to $2.37.
Trimming in short-side positions in CBOT corn and soybeans was even more substantial than in gas. Investors bought back 14% of CBOT corn shorts and 21% of shorts in CBOT beans, where they also raised longs by 29% to cut net risk by $6 Bn.
In NYM diesel, shortcovering accounts for two-thirds (3,123 contracts) of the flip to net long in gallon terms. HOM4 had slumped by 36 cpg (13%) between Apr 5 and May 2. The timing models we use signal it is still a touch early to buy prompt NYM diesel. HOCL1 is also still testing $23 as crude runs increase seasonally ahead of product demand. However, ICE gasoil today produced a buy signal in our work.
Source: Bloomberg, CFTC, Blacklight Research. Note: we use "institutional investors" to refer to the group catalogued as "Managed Money" in the CFTC's Commitment of Traders report.
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