COT: Commodities long liquidation spreads to energy

COT: Commodities long liquidation spreads to energy

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 the week to Tuesday, August 15. A week that saw risk adversity continue to rise in response to China growth and financial risk concerns and signs the Federal Reserve’s fight against inflation is not yet done. Speculators meanwhile maintained an unchanged dollar short position while broad commodities selling led to reductions across all sectors, with selling concentrated in gold, copper, soybeans, corn, and coffee while crude oil was mixed with WTI selling, being partly offset by Brent buying


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.

Global Market Quick Take Europe
Saxo Market Call Daily Podcast

Commodity weekly: China and FOMC woes weigh 


This summary highlights futures positions and changes made by hedge funds across commodities, forex and bonds in the week to last Tuesday, August 15. A week that saw risk adversity continue to rise in response to China growth and financial risk concerns and signs the Federal Reserve’s fight against inflation is not yet done. Global stocks lost altitude as US bond yields spiked towards fresh cycle highs while the dollar rose. Leveraged fund short selling across the US yield curve saw the long-end short position reach a record high while a near 2% drop in one of the major commodity indices was driven by broad selling across all sectors. 

Commodity sector:

The Bloomberg Commodity index traded lower for a second week as recent selling in metals and agricultural products spread to energy. Overall, it left the index down 1.8% on the week with losses being led by industrial metals (-3.3%) and grains (-3.7%) while emerging consolidation saw the energy sector down 1%. Leverage funds responded to these developments by net selling 16 out of the 24 major commodity futures tracked in this. Overall, the 166k contract reduction in the combined net long to 1.05 million was driven by a 75k contract reduction in the gross long and 90k contract increase in the gross short.

On an individual contract level, selling was concentrated in gold, copper, soybeans, corn, and coffee while crude oil was mixed with WTI selling, being partly offset by Brent buying.

21olh_cot1
21olh_cot2
Crude oil and fuel products: The buying of 139k WTI contracts compared with 71k in Brent since the early June rally began, left the WTI mostly exposed to long liquidation as crude went into consolidation mode. Overall, it helps explain the 31k contract reduction in WTI and 20k increase in Brent. The three fuel product contracts held steady with tightness underpinning prices and positioning at or near 18-month highs
21olh_cot3
Gold, silver and copper: A fourth week of gold selling cut the net long to a five-month low at 46.5k contracts, while the silver and platinum net short positions continued to rise. In copper, two weeks of aggressive selling (-40k contracts) saw the net short jump to 18k contracts, a three-month high.
21olh_cot4
Grains: The combined grain and soybean long were cut to near neutral at 17k contracts, led by heavy corn and wheat short-selling, and some 100k contracts below the seasonal average for this period.
21olh_cot5
Softs & Livestock: The coffee short nearly doubled to 27k contracts as the Arabica futures contract slumped 6% on harvest supply pressure. Small gains in sugar and cocoa did not prevent a third week of selling
21olh_cot7
In forex, the week to August 15 showed a rotation by speculators from CAD and AUD to EUR, CHF, GBP and JPY, but overall the gross dollar short was left close to unchanged at $15.7bn. Biggest IMM currency positions currently held: EUR +160k lots ($21.8bn equivalent), GBP +4k ($4bn) & MXN +82k ($2.4bn) while the biggest short positions are in JPY -81k (-$7bn) and AUD -53k (-$3.5bn)
21olh_cot8
US bond futures: An across the curve leveraged fund short position is being offset by an equivalent asset manager long. Last week the combined net short in T-Bonds and T-Bonds Ultra reached a record 1.08 million contracts, representing a DV01 of 185 million dollars per one basis-point change in yield

Quarterly Outlook

01 /

  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

  • Equity Outlook: Will lower rates lift all boats in equities?

    Quarterly Outlook

    Equity Outlook: Will lower rates lift all boats in equities?

    Peter Garnry

    Chief Investment Strategist

    After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto...
  • FX Outlook: USD in limbo amid political and policy jitters

    Quarterly Outlook

    FX Outlook: USD in limbo amid political and policy jitters

    Charu Chanana

    Chief Investment Strategist

    As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ...
  • Macro Outlook: The US rate cut cycle has begun

    Quarterly Outlook

    Macro Outlook: The US rate cut cycle has begun

    Peter Garnry

    Chief Investment Strategist

    The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c...
  • Commodity Outlook: Gold and silver continue to shine bright

    Quarterly Outlook

    Commodity Outlook: Gold and silver continue to shine bright

    Ole Hansen

    Head of Commodity Strategy

  • FX: Risk-on currencies to surge against havens

    Quarterly Outlook

    FX: Risk-on currencies to surge against havens

    Charu Chanana

    Chief Investment Strategist

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo...
  • Equities: Are we blowing bubbles again

    Quarterly Outlook

    Equities: Are we blowing bubbles again

    Peter Garnry

    Chief Investment Strategist

    Explore key trends and opportunities in European equities and electrification theme as market dynami...
  • Macro: Sandcastle economics

    Quarterly Outlook

    Macro: Sandcastle economics

    Peter Garnry

    Chief Investment Strategist

    Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p...
  • Bonds: What to do until inflation stabilises

    Quarterly Outlook

    Bonds: What to do until inflation stabilises

    Althea Spinozzi

    Head of Fixed Income Strategy

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ...
  • Commodities: Energy and grains in focus as metals pause

    Quarterly Outlook

    Commodities: Energy and grains in focus as metals pause

    Ole Hansen

    Head of Commodity Strategy

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

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.