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COT: Crude and fuel length jump one-third on tightening supply outlook

Picture of Ole Hansen
Ole Hansen

Head of Commodity Strategy

Summary:  Our weekly Commitment of Traders update highlights future positions and changes made by hedge funds and other speculators across commodities and forex during an extended reporting week to Tuesday, July 11. A week that saw stocks trade lower while continued dollar weakness was seen in the run up to last Wednesday’s lower than expected US inflation print. The 1% drop in the broad Bloomberg Dollar index supported a strong week in commodities, and with tightening supply of crude oil a key focus, hedge funds increased their crude and fuel exposure by one-third to a three-month high

Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities while in forex we use the broader measure called non-commercial.

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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Commodity weekly: Weak dollar driven rally

This summary highlights futures positions and changes made by hedge funds across commodities and forex during an extended reporting week to last Tuesday, July 11. A week that saw stocks trade lower while continued dollar weakness was seen in the run up to last Wednesday’s lower than expected US inflation print. The 1% drop in the broad Bloomberg Dollar index supported a strong week in commodities, primarily driven by the energy sector while the bond market was mixed buying of 2’s and selling of 10’s driving an 18-basis point steepening of the curve.

Commodity sector:

In the extended reporting week from July 3 to 11, the Bloomberg Commodity Index traded up 1.8% with broad gains being led by a surging energy sector on tight supply focus, and together with small gains in precious metals, grains, and livestock they more than offset small losses in industrial metals and softs. On an individual basis 19 out of the 24 major commodity futures tracked in this report traded higher, with the highflyers being crude oil and fuel products rising by around 7%, and followed by PGM’s (Platinum Group Metals), corn, wheat and hogs. 

Responding to these developments the overall net long held by hedge funds rose 104k contracts to 1.097 million contracts, a three-week high, with strong net buying of energy (135k contracts) and livestock (15k) being offset by net selling in metals (4k) and grains (40k)

Crude oil and fuel products: Fund buying of Brent and WTI crude oil accelerated, and the combination of short covering (34k) and fresh longs (47k) triggered the biggest jump and net long in three months. Fuel products also saw strong demand, not least gas oil (diesel).
Gold, silver and copper: Ahead of the midweek CPI related rally, specs were small buyers of gold while cutting their silver length to a four-month low. The net shorts in both platinum and palladium rose despite improved price conditions while the copper long was cut by 58% to a five-week low
Grains: Despite trading higher, corn saw a second week of aggressive net selling as traders continued to adjust positions after being wrongfooted by the late June price slump. Soybeans saw net selling while wheat’s 3% price rally only attracted a small amount of short covering.
Softs & livestock: Coffee selling extended to a fourth week driven the net short to a six-month high. Profit taking reduced length in sugar and cocoa while strong buying of cotton saw the position flip back to a net long for the first time in four weeks.
In forex, it was a week that despite broad dollar weakness saw limited appetite from speculators to extend bearish dollar bets. Overall, it left the gross dollar short versus nine IMM futures and the Dollar index near unchanged at $11.2 billion, with selling of EUR and CHF being offset by demand for GBP and JPY.


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