Head of Commodity Strategy
Summary: The COT report covering the week to December 10 saw hedge funds load up on crude oil following the OPEC+ meeting. Metals were mixed with copper bought ahead of the trade deal announcement while gold and silver were sold. Tightening supplies supported another strong week of coffee and sugar buying.
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 increased bullish commodity bets by 34% in the week to December 10. Biggest changes where buying of WTI (78k lots), Brent (43k), Copper (31k), Sugar (80k) and Coffee (15) while on the sell side gold (29k), silver (15k) and corn (30k) stood out.
Strong buying of crude oil and products emerged following the OPEC+ meeting in Vienna. The decision to cut production further to reduce the risk of an oversupplied market in early 2020 helped trigger a 25% increase in the combined crude long to 602k lots, the highest since May and the biggest one-week accumulation since December 2016.
The natural gas net-short extended to a fresh seasonal record high of 235k lots, just 4k below the absolute record from August. Above-normal temperatures have driven the price lower and the net-short higher and with that also increased the risk of volatility should frigid winter conditions suddenly make a return. Short sellers in other words need to pay close attention to U.S. winter weather developments.
The gold net-long was reduced by 13% to 197k lots, the lowest since June. Silver meanwhile saw it’s net-long being cut by one-third to 30k lots, a five-month low. Despite having the kitchen sink thrown at it (rising stocks, yields and the trade deal) gold still managed its highest weekly close in six. It supports our view that, trade deal or not, the 2020 outlook still calls for caution and demand for the diversification gold brings. Not least considering the potential inflationary impact of central banks slashing rates while pumping additional liquidity.
Speculators turned the least bearish on HG copper since May after the price broke a trifecta of resistance levels. The remaining short was most likely reduced further ahead of the weekend when the phase one trade deal was announced.
All three major crop futures were sold ahead of last week’s WASDE report and Friday’s trade deal announcement. The combined short in soybeans, corn and wheat reached 216k lots, the biggest seasonal short in two years. Just before the trade deal announcement helped force short-covering across the sector. However some skepticism remain with the market struggling to see how China can buy $50 billion worth of agricultural products. Especially when Trump refers to the volume as being on an annual basis. During the past 24 months China bought $52.4 billion worth of U.S. produced soybeans, crude oil, LNG, pork, cotton, maize, wheat and sorghum.
The emerging consensus for a global deficit next year in both sugar and coffee helped drive another strong week of buying. Six weeks of sugar short-covering was topped last week when speculators bought a record 80k lots to cut the net-short to just 15k lots, a one-year low. Eight weeks of Arabica coffee buying lifted the net long to 29k lots, a three year high. While the fundamental support remains, not least in coffee where Brazil is reported to run out of reserves, the aggressive buying has however increasingly left both contracts exposed to profit taking.
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