COT: Commodities show record position squaring COT: Commodities show record position squaring COT: Commodities show record position squaring

COT: Commodities show record position squaring

Picture of Ole Hansen
Ole Hansen

Head of Commodity Strategy

Summary:  From broad-based selling in previous weeks, as the economic outlook deteriorated, hedge funds last week turned to all out position reduction. A record amount of long and short positions were closed as the dash-for-cash stampede took hold.


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.

The below summary highlights futures positions and changes made by hedge funds across 24 major commodity futures up until last Tuesday, March 17. During this period deleveraging and the dash-for-cash hit a fresh peak. The dramatic reduction in exposure, both long and short, was seen across all asset classes, not just commodities. 

Hedge funds reduced long and short positions by a record 1 million lots during reporting week. As deleveraging accelerated the appetite for chasing the markets suffered. This is highlighted in the report with the broad based sell-off attraction short-covering instead of the fresh selling. Brent crude with its terrible demand outlook was the exception.  

23OLH_CMD1

The extend to which deleveraging drove the market action during the reporting week is clear to see from the below chart. Gross long and short positions were reduced by a more than 1 million lots, some 400k lots above the previous one-week reduction record. 

23OLH_CMD2

Crude oil positions diverged for a second week as the WTI net-long rose by 9k lots while Brent saw a 75k lots reduction to 79k lots, the lowest since November 2014.

The usual tight trading correlation between WTI and Brent has temporarily broken down with daily price swings of more than 10% and volatility close to 200%.

Brent is the contract that best reflects the global demand shock and the challenge it is to swallow all the additional supply from Russia and the Middle East over the coming months. The WTI contract was net bought last week, probably in response to speculation that the US would support the domestic market. It helped reduce WTI's long-held discount to Brent, so much that it temporarily disappeared before widening again to the current$3.2/b.

While gross long positions in both were reduced amid the 22% sell-off, the WTI gross short was cut by 28k lots while 30k lots were added to Brent. Overall the combined net-long dropped to 202k lots, a level this low last seen in December 2012.

23OLH_CMD3

The gold long was cut by 31% to 177k lots, a nine-month low, while silvers collapse to a near decade low reduced the net-long by a relative small 20%. This after short-sellers cut positions instead of adding into the weakness. HG Copper was another example of the lack of risk appetite. Instead of attracting fresh selling on the break below key support the net short was in fact reduced by 1k lots

23OLH_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.

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • 350x200 peter

    Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • 350x200 althea

    Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • 350x200 peter

    Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • 350x200 charu (1)

    FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • 350x200 ole

    Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)

Saxo Bank A/S (Headquarters)
Philip Heymans Alle 15
2900
Hellerup
Denmark

Contact Saxo

Select region

International
International

Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

This website can be accessed worldwide however the information on the website is related to Saxo Bank A/S and is not specific to any entity of Saxo Bank Group. All clients will directly engage with Saxo Bank A/S and all client agreements will be entered into with Saxo Bank A/S and thus governed by Danish Law.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.