COT: Speculators cut exposure in pro-cyclical commodities

Ole Hansen

Head of Commodity Strategy

Summary:  The COT report covering the week to December 3 found speculators selling pro-cyclical and trade war impacted commodities. This after Trump blurted a trade deal could be delayed until after the November US Presidential election. Hardest hit were crude oil, natural gas, copper and soybeans while gold, corn, sugar and wheat were bought


Saxo Bank publishes two weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial.

Hedge funds were aggressive sellers of pro-cyclical and trade war impacted commodities during the week to December 3. This after Trump blurted a trade deal could be delayed until after the November US Presidential election. Hardest hit were crude oil, natural gas, copper and soybeans while gold, corn, sugar and wheat were bought. Overall the combined net long across the 24 major commodity futures tracked in this dropped by 153k lots to 555k lots.

09OLH_CMD1

Heavy selling hit the energy sector as crude oil gyrated in a wide range ahead of Friday’s OPEC+ meeting. A meeting which controlled by the Saudis ended up being a major exercise in trying to support crude oil and with that a $2 trillion Aramco valuation. This after the Saudis on top of an agreed group reduction of 500k b/d surprised the market with an additional voluntary cut of 400k b/d. While providing a floor under the market further upside now hinges on whether Iraq and others will implement the necessary cuts to comply with their new quotas.

The combined net-long in WTI and Brent was cut by 66k lots after funds added 103k lots the previous week.

Natural gas, down another 4% this Monday, has been left ill prepared for any extreme cold snap over the coming weeks. Following the worst November price action in 18 years the net-short across four Henry Hub deliverable contracts reached a seasonal record high last Tuesday of 214k lots.

09OLH_CMD2

Gold was bought as the market challenged resistance at $1480/oz. A level that subsequently failed to hold as the market continued to pump and dump on trade and economic data news. The net long rose by 10% to 227k, some 22% below the October record.

Long liquidation cut the silver long by 8% while copper short selling extended to a fourth consecutive week. This before breaking and closing above its 200-day moving average on Friday following the strong US job report.

09OLH_CMD3

During the past five weeks funds have reversed their soybeans position from a 72k lots long to a 99k lots short. This is in response to a 10% price drop during this time as demand worries lingered. Especially from China which will soon have alternative sources of supply as the South American harvest moves closer.

Surging coffee prices saw the net-long extend to a three year high at 14k lots. Tightening fundamentals have cut in half the contango which for the past few years helped make coffee one of the most attractive hedge fund short positions to hold.

09OLH_CMD4
What is the Commitments of Traders report?

The Commitments of Traders (COT) report is issued by the US Commodity Futures Trading Commission (CFTC) every Friday at 15:30 EST with data from the week ending the previous Tuesday. The report breaks down the open interest across major futures markets from bonds, stock index, currencies and commodities. The ICE Futures Europe Exchange issues a similar report, also on Fridays, covering Brent crude oil and gas oil.

In commodities, the open interest is broken into the following categories: Producer/Merchant/Processor/User; Swap Dealers; Managed Money and other.

In financials the categories are Dealer/Intermediary; Asset Manager/Institutional; Managed Money and other.

Our focus is primarily on the behaviour of Managed Money traders such as commodity trading advisors (CTA), commodity pool operators (CPO), and unregistered funds.

They are likely to have tight stops and no underlying exposure that is being hedged. This makes them most reactive to changes in fundamental or technical price developments. It provides views about major trends but also helps to decipher when a reversal is looming.

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