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COT: Oil and copper in speculators' spotlight last week

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 up until last Tuesday, June 7. A week that saw stocks make a tentative but, as it turned out, futile attempt to recover. Bond yields and the dollar headed higher while the commodity sector led by energy hit another record high.


Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial.

This summary highlights futures positions and changes made by hedge funds across commodities and forex up until last Tuesday, June 7. A week that saw stocks make a tentative but, as it turned out, futile attempt to recover after better than expected economic data raised the prospect of the US Federal Reserve managing a soft landing. Hopes that was shot down in flames on Friday when US inflation jumped to a fresh 40 year high and consumer confidence, hurt by the rising cost of everything, took a dive. 

Returning to the reporting, bond yields and the dollar headed higher while the commodity sector led by energy hit another record high. 

The latest across-market updates, including crude oil, gold and industrial metals, can be found in our daily Financial Market Quick Take here

Commodities

The Bloomberg Commodity Spot index which tracks a basket of major futures contracts in energy, metals and agriculture jumped 4% during the reporting week, with gains being led by crude oil, natural gas, platinum, soybean oil and livestock. 

Speculators responded to these developments by increasing their net long exposure to 24 major futures contracts by 4% to 1.7 million lots, still some 23% below the recent peak in bullishness from February 22, before the Ukraine invasion forced volatility targeting funds to cut their  exposure as volatility spiked. 

The increased exposure was concentrated among a handful of commodities led by crude oil, most metals, cocoa, coffee and cattle. 

Energy: Crude oil saw another week of gains, with the 4% jump driving a 20k lots increase in the combined WTI and Brent crude oil long to 514k lots, a 14-week high. Only minor changes were seen among the fuel contracts while a 14% jump in natural gas only managed to attract a limited amount of fresh net buying.

Metals: The hot and cold price action in metals seen during the past month continued and during the week a small uptick in gold helped attract 7.1k lots of net buying, primarily led by short covering following selling in the previous week. Copper’s break above $4.35 helped trigger 16.4k lots of net buying as speculators flipped positions back to a net long of 6.7k. Silver enjoyed the tailwind from copper’s run higher, and the 2.3% gain helped drive a 140% increase in the net long to 7.6k lots, still low from a historical perspective, and reflecting well the wait-and-see currently adopted by many traders.

Agriculture: In grains, the overall net long position across the six major grain and soy contracts saw another weekly reduction, and since hitting a ten-year high on April 22 it has now seen a 27% reduction. The reduction last week was led by soybeans and not least wheat as the talk of a Ukraine grain corridor helped attract some long liquidation. Softs were mixed with speculators reducing exposure to sugar while adding length in coffee and cocoa.

Forex

Renewed dollar strength in the week to June 7 was not enough to reverse a recent move to reduce bullish dollar bets. Instead speculators cut the aggregate dollar long versus ten IMM futures and the Dollar index by 7% to $16.2 billion, a six week low. This during a week where most of the major pairs, led JPY, CHF and EUR traded lower against the greenback. 

The 3% rally in USDJPY to a 20-year high helped attract fresh JPY longs from speculators - so far unsuccessfully - looking for bottom. Short-covering meanwhile helped support a 21% reduction in the CHF net short while a renewed rally in crude oil supported an 85% reduction in the CAD short to near neutral.

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

 

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