COT: Commodity demand remains strong despite growing uncertainty

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, April 18. A week that saw some additional dollar weakness, rising stocks and rising US yields as rate cut expectations continued to moderate. In commodities, demand from managed money accounts remained strong with 24 out of 28 major commodity futures tracked in this seeing net buying, led by crude oil, copper, platinum and soybeans


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 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

 

Global Market Quick Take Europe
Saxo Market Call Daily Podcast


This summary highlights futures positions and changes made by hedge funds across commodities and forex during the week to last Tuesday, April 18. A week that saw some additional dollar weakness, rising stocks and rising US yields as rate cut expectations continued to moderate.

Commodity sector:

The Bloomberg Commodity Index added 1.5% to trade higher for a fourth, led by broad gains across all sectors. Gains were led by a recovering grains sector and industrial metals while the energy and precious metals saw moderate gains. Across the 24 major commodity futures tracked in this update, all but four contracts saw net buying led by crude oil, copper, platinum, soybeans and corn. Overall the net long rose 146k lots to 1.33 million, an eight week high, and representing a notional value of $111 billion.

Crude oil: Despite some emerging price weakness that accelerated last Wednesday, the day after the reporting week ended, the buying of crude oil extended to a third week. The total net long in WTI and Brent rose 21.9k lots to 454k lots. Fresh longs drove the bulk (93%) of this increase, but they were left vulnerable to the correction that followed. This concluded a five-week roundtrip that saw a combine 232k lots of WTI and Brent being sold as the banking crisis drove a technical-driven sell-off before OPEC+ production cuts supported a 213k lots reversal.

For natural gas, the attempt to rally from the current $2 floor has been so far futile. However, it helped support a reversal of the positions held across four Henry Hub deliverable swaps and futures contracts to the first net-long in ten months. The combination of a year-to-date decline of around 50% and an elevated contango, which favors those holding short positions, has been a major obstacle preventing a sustained recovery.

Gold: A second week of net selling, this time primarily driven by an increase in the gross short following the failure to break above $2050, saw the net long reduced by 3.3k lots to 134k lots. The total 10.7k lots net reduction seen during the past two weeks, however, remain very small compared with the 121k lots that was added in the month that followed the banking crisis. Highlighting a market that would need to see and even bigger correction in order to trigger any forced long liquidation, a risk that remains relatively small as long gold holds above support in the $1955-60 area.

Platinum: Speculators responded to a 9% rally and a significant narrowing of the discount to gold by lifting the platinum net-long by a substantial 12.8k lots to 18.4k lots. This is the biggest one-week addition of length since September 2019. The change was driven by equal measures of fresh longs and short covering, and it highlights a metal that up until now has been under-owned as investors instead focused on gold and silver. The continued momentum last week continued to yield fresh longs, not least on Friday when the closed at $1127, a 13-month high. In the short-term developments that may raise the risk of pullback should the technical and/or fundamental outlook turn less bullish.

HG Copper: In response to the upside break during the reporting week, and which later on failed, the copper long jumped 230% to 19.8k lots. This highlights a market where traders are worried about missing the upside once it materializes, but also how failure turns to immediate long liquidation and with that, fresh price weakness as seen last Thursday and especially Friday. For now, the metal remains rangebound, having returned to the center of its current $3.8 to $4.2 trading range. However, with global visible exchange monitored stocks at the lowest seasonal level since 2008, the downside risks in our opinion remain limited.

Grains: Flows were mostly positive, with buying seen across all but one of the five major grain and oilseed contracts tracked in this update. Buying was concentrated in soybeans and corn, while small wheat buying was seen before the largest decline in a month. This occurred as Ukraine resumed grain shipments through the Black Sea corridor after a two-day halt, thereby supporting those holding the biggest CBOT wheat short in five years.

Softs: Broad buying extended to a fourth week, with length being added to the four contracts tracked in this update. The largest increase was in the Arabica coffee net long, which jumped 54% to 33.6k lots, and a halving of the cotton net short to 7.3k lots.

Forex

In forex, speculators were net sellers of the dollar for a fourth week running, resulting in a 15% increase in the gross short versus nine IMM futures and the Dollar Index to $11 billion, a nine-week high. The most notable flow involving selling of the greenback was short covering in CAD and CHF, while the GBP net flipped to a small net-long for the first time in fourteen months.

Quarterly Outlook

01 /

  • 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...
  • 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 ...
  • 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

Saxo Capital Markets (Australia) Limited prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at https://www.home.saxo/en-au/legal/.

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, 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. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such 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.

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments.Saxo Capital Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Please read our disclaimers:
- Full Disclaimer (https://www.home.saxo/en-au/legal/disclaimer/saxo-disclaimer)
- Analysis Disclaimer (https://www.home.saxo/en-au/legal/analysis-disclaimer/saxo-analysis-disclaimer)
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)

Saxo Capital Markets (Australia) Limited
Suite 1, Level 14, 9 Castlereagh St
Sydney NSW 2000
Australia

Contact Saxo

Select region

Australia
Australia

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-au/about-us/awards

Saxo Capital Markets (Australia) Limited ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide, Product Disclosure Statement and Target Market Determination to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation. The Target Market Determination should assist you in determining whether any of the products or services we offer are likely to be consistent with your objectives, financial situation and needs.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.

Please click here to view our full disclaimer.