COT update: Energy strength underpins crops as precious metals demand soften

Commodities

The latest COT reporting week captured a period where traders continued to look for - while maintaining hope for - a still elusive breakthrough in US-Iran negotiations aimed at ending a month-long war that has tightened global supplies of key commodities, from crude oil and refined fuels to gas, petrochemicals, several metals, and fertilizers. The conflict has underpinned not only energy prices but also several agricultural commodities through second-round impacts linked to higher input costs and supply chain disruptions.

During the reporting week, the Bloomberg Commodity Index delivered a relatively muted return of 0.7%, with gains in energy and grains partly offset by losses across precious metals, softs, and livestock. Across the 25 major futures contracts we track, net selling was recorded in 15, led by natural gas, gold, silver, sugar, and hogs, while buying was concentrated in copper, soybeans, wheat, and cotton.

Key takeaways:

Energy: Positioning changes across WTI, Brent, and refined products were relatively limited, with an elevated level of uncertainty and high volatility dampening risk appetite from leveraged funds. The most notable shifts were an increase in Brent gross shorts and a reduction in ICE WTI equivalent longs. Overall, the combined crude oil net long - which reached a four-year high last month - has since been reduced by 13% to 481k contracts.

Metals: Precious metals saw renewed selling, led by a 20% reduction in the silver net long, while the gold long hovered just above a two-year low, highlighting relatively light managed money positioning amid a lack of clear directional signals. Gold continues to trade within a USD 200 range, gravitating around USD 4,750. Copper, meanwhile, attracted buyers for a third consecutive week as its strong rebound from the early March slump drew fresh demand, although that momentum may be challenged after several failed attempts to break resistance around USD 6.15.

Agriculture: Buying continued across the three major crops, led by soybeans and corn. Softs were mixed, with a one-third reduction in the sugar long and a doubling of the cotton long standing out, while all three major livestock contracts recorded net selling.

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.