Weakening Energy Combined with Gold Net Outflows Drives Commodity Funding Downturn

Overview

This is a weekly ‘Market Positioning and Fund Flows’ tracking report from J.P. Morgan’s Global Commodities Research team, covering changes in open-interest value, net investment positions, and capital flows across commodity futures markets as of the week ending May 29, 2026. The key takeaway: weighed down by declining energy prices (except U.S. natural gas) and substantial gold-market outflows, total tracked commodity open interest fell 4% week-over-week ($69 billion) to $1.82 trillion, while net investment positions dropped 8% ($20 billion) to $223 billion; energy and agricultural products were the primary drag, whereas base metals and environmental (carbon-emissions) markets defied the trend, drawing inflows.

Core views

Overall funding conditions weakened this week. The decline in open-interest value was driven primarily by falling energy prices and a combined $22 billion net outflow from various gold-market participants. On the net-position front, energy shed $9 billion, agricultural products lost $6.5 billion, precious metals saw a $3.5 billion reduction, and base metals decreased by $1.5 billion. J.P. Morgan’s QDS team’s latest forecast as of June 1 projects a further roughly $2.6 billion drop in holdings, still led by energy. Energy segment: Energy open interest fell 6% week-over-week ($56 billion) to $81.6 billion, largely dragged down by declines in crude-oil and refined-product prices (Brent down 11%, WTI down 10%, ICE gasoil down 11%), compounded by about $14 billion in net contract outflows (mainly from crude oil). Crude-oil net longs slipped from $61 billion to $51 billion. The report estimates a roughly 9% drop in Chinese oil demand but expects some gasoline, diesel, and fuel-oil weakness to persist, while jet fuel and naphtha should largely recover. Natural-gas open interest declined 3% to $17.5 billion; the report calculates that the global LNG market has absorbed about 60% of the Hormuz-related supply shock through new projects in North America and Africa, keeping spot prices relatively stable. However, as market flexibility wanes and European inventories remain well below average, prices are expected to rise during the injection season, accelerating Europe’s “gas-to-coal” shift and dampening Asian spot-LNG demand. Precious metals and gold: Precious-metals open interest fell 8% ($22 billion) to $26.4 billion, marking the third straight weekly decline, chiefly due to a $22-billion net outflow from gold contracts. Notably, COMEX gold managed-money net longs actually increased by 3,900 contracts to 97,400; despite ongoing selling in April and May, global gold-ETF holdings stand at 4,131 tonnes (+3% year-to-date), signaling diverging trends among different investor groups. Base metals: Base metals bucked the broader trend, posting a modest 1% increase in open interest ($1.8 billion) to $23.9 billion, with copper’s $2.3-billion inflow offsetting outflows from aluminum (-$900 million) and zinc (-$300 million). The report maintains a “higher for longer” view on zinc: renewed supply-side disappointments and disruptions, amid persistently weak demand, continue to support elevated pricing; LME zinc is expected to average $3,400–$3,500 per tonne for the remainder of 2026, incentivizing Chinese exports. Environmental and agricultural sectors: Environmental (carbon-emissions) open interest rose 7% ($50 million) to $7.6 billion, driven by a 5% gain in EUA prices and roughly $1 billion in net inflows. Agricultural open interest remained broadly flat at $39.3 billion, with soybeans’ roughly $400-million inflow largely offset by price declines in corn, wheat, sugar, and cotton. Price momentum signals: Most varieties saw weakening price momentum this week, with short-term trading signals for gasoil, TTF natural gas, soybeans, and sugar flipping from positive to negative, turning to “sell.”

Analysis framework

The report’s central approach is to “take the pulse of commodity markets using fund-flow and position data.” Step one involves aggregation and decomposition: separately calculating each sector’s and variety’s open-interest value (number of contracts × contract size × current price) and net investment position, then breaking down weekly changes in open interest into “price-driven” and “flow-driven” components to distinguish whether shifts reflect price movements or actual buying and selling—this dual-analysis framework underpins the report’s repeated emphasis on “price declines plus net contract outflows” as the underlying causes. Step two focuses on observing trader composition: leveraging classifications such as those from the CFTC to disaggregate holdings into producers/traders, swap dealers, managed funds, other reportable entities, and non-reportables, thereby identifying divergences in investor behavior (e.g., overall gold outflows but rising managed-fund longs). Step three assesses price momentum: z-scores quantify how far prices deviate from their historical averages, and trend-tracking models generate buy/sell/neutral signals to gauge when momentum might reverse. In its variety-specific assessments, the report approaches zinc primarily through the supply lens (supply disruptions supporting prices) and analyzes natural gas by integrating inventory levels, the degree of supply-shock absorption, and seasonal dynamics to project price trajectories.

Methodology notes

• Event Game and Behavioral FinanceFund Flow/Chip Analysis

  Tracking the flow of funds into and out of open-interest values and various traders’ net positions

  By observing who is adding or reducing positions and measuring net inflows and outflows, we can gauge shifts in market sentiment and positioning. This report employed this method to identify structural trends such as large gold outflows and copper inflows.

• Industry/Industrial Analysis FrameworkPrice–Volume Decomposition

  Breaking down weekly changes in open-interest value into ‘price-driven’ and ‘flow-driven’ components

  Open interest is influenced by both price and position volume; separating these allows us to determine whether shifts are driven by price fluctuations or actual trading activity. The report frequently highlights ‘price declines coupled with net contract outflows,’ a direct result of this decomposition.

• Quantitative/Factor/Portfolio Theory

  Price-momentum z-scores and CTA trend-tracking trading signals

  The z-score measures how many standard deviations current prices deviate from their historical averages; when a z-score crosses zero—the “switch point”—trend-tracking models often flip from buy to sell or vice versa, amplifying price swings in markets with heavy CTA participation. When momentum becomes excessively extreme, signals turn neutral to lock in profits or exit. Based on this, the report advises “sell” signals for gasoil, TTF, soybeans, and sugar.

• Quantitative/Factor/Portfolio TheorySharpe/Information Ratios

  Using information ratios to evaluate the performance of momentum-trading signals

  The information ratio measures excess returns generated per unit of risk taken; higher values indicate better risk-adjusted performance. The report employs this metric in its momentum-signal table to compare the robustness of trading signals across different varieties.

• Industry/Industrial Analysis FrameworkSupply-demand framework

  Explaining zinc’s ‘higher for longer’ pricing through supply-side disruptions

  For certain commodities, the core pricing dynamic lies in supply. The report judges that zinc will face renewed supply disappointments and disruptions in 2026, which, even amid weak demand, will keep prices elevated, reflecting a ‘supply-driven pricing’ analytical approach.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Zinc (LME Zinc)

  Increasing supply disappointments and disruptions sustain elevated prices despite weak demand; viewed as ‘higher for longer’

  Strengths

  Supply disruptions prop up prices; expected average range of $3,400–$3,500 per tonne in H2 2026

  Weaknesses

  Demand remains sluggish

  Comparison

  Among base metals, it is one of the varieties most favored by institutions, contrasting with aluminum and zinc, which saw outflows this week

  Risks

  There is a risk of faster cooling in H2 2026: Chinese exports could surge, and inflationary pressures may curb demand more sharply than anticipated

• Gold (COMEX Gold)

  Various traders collectively posted a $22-billion net outflow this week, the primary driver of precious-metals and overall market funding retreat

  Strengths

  Managed funds’ net longs unexpectedly increased by 3,900 contracts to 97,400; global gold-ETF holdings stand at 4,131 tonnes (+3% year-to-date)

  Weaknesses

  Overall, there was a large net contract outflow, and open interest declined for the third consecutive week

  Comparison

  Funding outflows contrast with the rise in managed-fund longs

• Copper (CMX/LME Copper)

  Gained a net inflow (+$2.3 billion) this week, offsetting aluminum and zinc outflows and helping base metals post a rare gain

  Strengths

  Attracted capital even as most base metals experienced outflows

  Comparison

  Contrasts with aluminum’s -$900 million and zinc’s -$300 million outflows

• Crude Oil (Brent/WTI)

  Sharp price drops (Brent down 11%, WTI down 10%) combined with roughly $14 billion in net outflows made it the weakest link in the energy sector

  Weaknesses

  Net longs shrank from $61 billion to $51 billion

  Comparison

  The most drag-inducing variety within the energy segment

  Risks

  Estimated 9% decline in Chinese oil demand

• Natural Gas (TTF/U.S. Natural Gas)

  Sector open interest fell 3%; U.S. natural gas prices rose counter-trendingly, while TTF saw a net contraction

  Strengths

  U.S. natural gas prices climbed; LNG has absorbed roughly 60% of the Hormuz-related supply shock

  Weaknesses

  European inventories are far below average, and market flexibility is diminishing

  Comparison

  U.S. natural-gas trends diverge from European and Asian benchmark prices

  Risks

  Prices may soar during the injection season, accelerating Europe’s ‘gas-to-coal’ shift and dampening Asian spot-LNG demand

Key data

• Total Open Interest in Tracked Commodity Markets$1.82 trillion (as of May 29)Down 4% week-over-week, a $69 billion decrease
• Total Net Investment Positions$223 billionDown 8% week-over-week, a $20 billion drop, mainly dragged by energy and agriculture
• Crude-Oil Net LongsDecreased from $61 billion to $51 billionA weekly decline; total energy net longs shrank by $9 billion
• Energy Sector Open Interest$81.6 billionDown 6% week-over-week ($56 billion), including roughly $14 billion in net contract outflows
• Precious-Metals Sector Open Interest$26.4 billionDown 8% week-over-week ($22 billion), marking the third straight weekly decline; gold saw a $22-billion net outflow
• COMEX Gold Managed-Funds Net LongsIncreased by 3,900 contracts to 97,400Contrasts with the overall gold-funding outflow, highlighting divergence among investors
• Global Gold-ETF Holdings4,131 tonnes+3% year-to-date, despite continued selling in April and May
• Base-Metals Sector Open Interest$23.9 billionUp 1% week-over-week ($1.8 billion); copper gained $2.3 billion, aluminum lost $900 million, zinc shed $300 million
• Expected LME Zinc Price$3,400–$3,500 per tonneAverage range for the rest of 2026, intended to encourage Chinese exports
• Environmental (Carbon-Emissions) Market Open Interest$7.6 billionUp 7% week-over-week ($50 million), fueled by a 5% rise in EUA prices
• Agricultural Market Open Interest$39.3 billionEssentially unchanged; soybeans’ roughly $400-million inflow offset by grain/sugar/cotton price declines
• Weekly Oil-Price ChangesBrent down 11%, WTI down 10%, ICE gasoil down 11%Main reasons behind the energy-sector open-interest decline
• Chinese Oil DemandEstimated to have fallen by about 9%Some gasoline–diesel–fuel-oil weakness may persist, while jet fuel and naphtha should largely recover
• QDS Latest Holdings Forecast (June 1)Projected to fall another roughly $2.6 billionStill led by the energy market

Impact & implications

The report concludes that rising energy prices are gradually feeding into economists’ overall inflation forecasts, yet core inflation worldwide (excluding China) is still expected to remain stubbornly around 3%, potentially intensifying pressure on the Federal Reserve to tighten policy. However, factoring in easing and stabilization expectations across regions, institutions have shifted toward a “broad but shallow tightening cycle over the next year globally.” At the variety level, institutions favor zinc’s “higher for longer” trajectory amid supply disruptions but caution of a faster cooling risk in H2 2026; for natural gas, as market flexibility erodes and European inventories dip, prices are likely to climb during the injection season, supporting inventory replenishment by accelerating Europe’s “gas-to-coal” shift and curbing Asian spot-LNG demand.

Risks

• Zinc faces a risk of faster price declines in H2 2026: Chinese exports could surge, and inflationary pressures may suppress demand more sharply than anticipated
• Rising energy prices are pushing overall inflation higher, and with core inflation remaining sticky around 3%, the Fed may feel greater pressure to tighten policy

What to watch

• Europe’s injection-season natural-gas prices and inventory trends, and the resulting ‘gas-to-coal’ substitution and shifts in Asian spot-LNG demand
• The evolution of the global ‘broad but shallow’ tightening cycle and its impact on commodity pricing
• QDS’s projections for subsequent holdings (expected to fall another roughly $2.6 billion, still led by energy)
• Subsequent developments in price-momentum signals for gasoil, TTF, soybeans, and sugar, which have already flipped to ‘sell’