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COT: Energy sector led cautious recovery in risk appetite

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Ole Hansen

Head of Commodity Strategy

Summary:  Findings from the latest COT report issued by the US CFTC and ICE Exchange Europe, and covering the week to March 22, with focus on futures positions and changes made by hedge funds across commodities, forex and financial futures markets. A week that encapsulated a post-FOMC surge in risk appetite across global stocks while bond yields raced higher on the prospect of rising inflation forcing a more aggressive Fed reaction. The dollar held steady with a sharply weaker yen being offset by gains across most other currencies. The commodity sector was mixed with strong gains across the energy sector and softs being partly offset by metal weakness and emerging softness across key crops.

Saxo Bank publishes 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.

This summary highlights futures positions and changes made by hedge funds across commodities, forex and financials up until last Tuesday, March 22. A week that saw a post-FOMC surge in risk appetite with the MSCI World and S&P 500 both jumping by more than 6% while VIX, the fear index, slumped. Bond yields raced higher on the prospect of rising inflation, forcing a more aggressive Fed reaction while the dollar held steady with a sharply weaker yen being offset by gains across most other currencies. The commodity sector traded mixed with strong gains across the energy sector and softs being partly offset by metal weakness and emerging softness across key crops. 


The Bloomberg Commodity Spot index traded higher during the reporting week, thereby recouping some the losses from the previous week when surging volatility and increased focus on margin calls forced a blanket reduction of positions across the whole sector. 


Energy: The energy sector saw most of the activity with gains from 15% in crude oil to 30% in gas oil (diesel) lifting the net long across the sector for the first time in three weeks. Hedge funds lifted their WTI and Brent crude oil net long by 13k lots, after 123k lots were dumped during the previous two week amid surging volatility and margin calls. The 28% jump in ULSD (diesel) triggered a 23% reduction driven by fresh short selling.

From today's Market Quick Take: 
Crude oil (OILUKMAY22 & OILUSMAY22) trades lower in early trading with Friday’s rebel attacks on Saudi Arabia are being offset by concerns about the short-term demand outlook in China, after the world’s largest importer of crude, said it would lock down half of Shanghai for mass testing as virus flare-ups continue to spread. Russian and Ukraine peace talks resumes this week but with Putin’s government regarded as toxic to many key buyers, self-sanctioning is likely to continue despite a potential solution. On Thursday, OPEC+ meets virtually to set targets for May but given their inability or unwillingness to discuss the elephant in the room, the drop in Russian production, hopes for additional barrels from GCC producers remain slim. Key resistance in Brent at $123/b while a break below $112/b would signal further loss of momentum.

Metals: Speculators continued to adjust positions following the recent 175 dollar top to bottom correction in gold, and after the FOMC carried out the first of many rate hikes in order to curb runaway inflation. The result being a 9% reduction in both gold and silver length. HG Copper meanwhile saw its net long jump 25% but at just 36.5k lots, it remains around 45% below the one-year peak. 

From today's Market Quick Take:
Gold (XAUUSD) trades lower as the global bond rout continues to gather momentum with the US ten-year Treasury yield surging past 2.5% in Asia while crude oil trades lower as China’s virus flare-ups worsens and Ukraine appears to be ready to discuss a deal (see below). Having failed to punch through resistance at $1962 last week, the market is once again trading on the defense with focus on ETF flows, the key source of underlying demand during the past month. A break below $1922 raising the risk of a return to key support in the $1900 area. 

Copper (COPPERUSMAY22) trades lower for a third day with traders worried about the short-term impact of demand as China, the world’s top consumer, continues to battle virus flare-ups. In addition, Jiangxi Copper Co., China’s top producer of the metal, warned on Friday that prices of the metal may fall this year along with other commodities as countries roll back stimulus and high prices curb demand, while logistics bottlenecks ease.

Grains: The grains sector also saw mixed action with length being added to soybeans and corn while wheat saw a small net reduction. Overall, however, the net long across the six major futures markets reached a ten-year high and the third highest on record. 

Softs: A strong across sector gain of 5.5% only attracted net buying to cotton and sugar with coffee’s bounce from a four-month low lacking conviction as longs were reduced as the price moved higher.



Despite trading lower following the long-awaited first US rate hike on March 16, speculators instead opted to increase their overall dollar long against ten IMM currency futures and the Dollar index by 45% to $15.4 billion. Except for fresh EUR buying, flows were generally dollar friendly with selling being most noticeable in CAD (-22.6k lots or $1.8 billion equivalent), and JPY (-16k lots or $1.7 billion equivalent) which dropped to a six-year low. 

What is the Commitments of Traders report?

The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class.

Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and other
Financials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and other
Forex: A broad breakdown between commercial and non-commercial (speculators)

The reasons why we focus primarily on the behavior of the highlighted groups are:

  • 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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