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COT: Crude long builds ahead of Q3 while grains selling accelerates

Picture of Ole Hansen
Ole Hansen

Head of Commodity Strategy

Key points:

  • Positions and changes made by speculators in commodities and forex in the week to June 25
  • In forex large but mixed flows left the dollar long near unchanged
  • In commodities buyers focused on crude oil, gas oil, platinum and sugar, and sellers on grains, natural gas and copper
  • Gold continues to see limited selling appetite with prices holding well above entry levels 

Forex

In forex, the flows during the reporting week to June 25 were generally large but also very mixed, with speculators' sale of 16.4k contracts of EUR (USD 2.2 billion equivalent) and 26k JPY ($2.1 billion) being partly offset by strong buying of the antipodeans and CAD. The Aussie short was reduced by 18k contracts (USD 1.2 billion) to 23.7k, the smallest in three years, while the Kiwi long at 26.6k is the largest since 2018. Adding to these the buying of 25.5k contracts of CAD (USD 1.9 billion) and the overall dollar long against eight IMM forex futures ended up near unchanged on the week at an eight-week high of USD 25.6 billion

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Non-commercial IMM futures positions versus the dollar in week to June 25

Commodities

The latest Commitment of Traders (COT) report, covered the week to June 25 when the Bloomberg Commodity index dropped 1.2% with losses seen across all sectors, except softs where gains were seen in sugar, coffee, and cotton. Once again, however, the grains sector came under pressure from improved conditions in key growing areas and ample supply being left over from last year’s production season. Elsewhere, the energy sector traded mixed with losses in natural gas offsetting small gains elsewhere. The metal sector continued to consolidate with gold holding above key support while copper has given back around half the strong gains recorded earlier this year.

Hedge funds responded to these developments by adding length to crude oil, gas oil, platinum, and sugar while selling was concentrated in grains, followed by natural gas, copper, cocoa, and hogs.

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Managed money long, short and net commodities positions in the week to June 25
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Energy: Speculators rush back into crude oil extended to a third week and during this time the net long has almost doubled to 394k contracts. Last week the buying was concentrated in WTI, resulting in the net long jumping 24% to 236k. Elsewhere the gas oil long reached a 2-year high at 99.4k contracts, while ULSD and natural gas were sold.
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Metals: A small 5k lots small reduction in the gold long highlighting a continued reluctancy from funds to reduce exposure entered into at much lower levels back in March. The silver net long was left unchanged after long and short both got reduced, the platinum long doubled after recent selling, while the copper long was cut for a fifth week, this time driven by an increase in the gross short.
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Grains selling accelerated led by corn (-86k) followed by the soybeans complex (-59k) and wheat (-26k). The BCOM Grains sector slumped 4.2% during the reporting week on improved crop weather in Russia, and expectations US quarterly stocks would show a large carryover to the next crop year.
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In softs, the main change was another big reduction in the sugar short, continued buying of coffee and a small reduction in the cotton short which recently reached a near five-year high.

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 main reasons why we focus primarily on the behavior of speculators, such as hedge funds and trend-following CTA's 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

Do note that this group tends to anticipate, accelerate, and amplify price changes that have been set in motion by fundamentals. Being followers of momentum, this strategy often sees this group of traders buy into strength and sell into weakness, meaning that they are often found holding the biggest long near the peak of a cycle or the biggest short position ahead of a through in the market.

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