China concerns weigh on commodities

The 6% fall in oil on July 6 surprised investors and was attributed to China and Iran concerns. The oil positioning unwind was the second largest on record, explaining a large part of the July 6 collapse. 

Also, there are worries that de-risking of macro/CTA funds could weigh on markets. Indeed, the July 6 collapse was likely exacerbated by an extraordinary unwind of net long WTI positions. 

"The weekly decline was the second largest on record. Based on the macro oil model, the positioning unwind explains nearly half of the recent move in oil. The positioning overhang is a risk in Oil rally in perspective", says Barclays. 

In addition, the 3% rise in the dollar this month explains the other half. As our oil strategists point out, Iran supply will be a moderate and prolonged overhang on the oil market. WTI positioning is still net long (12% of open interest), in large part reflecting the geopolitical risk premium, and will also be a headwind for oil prices as it normalizes.