COT: Oil longs trimmed again ahead of spike COT: Oil longs trimmed again ahead of spike COT: Oil longs trimmed again ahead of spike

COT: Oil longs trimmed again ahead of spike

Ole Hansen

Head of Commodity Strategy

Summary:  The COT reports published weekly by the US CFTC highlight futures positions and changes made by hedge funds across commodities, forex and financials. This update covers the week to February 8, a week that included the reaction to the much stronger than expected US report, but not last Thursday’s CPI shocker. The dollar long was cut to a 5-1/2 month low, while some profit was seen in commodities led by energy


Monday morning updates from the Strategy Team:
Market Quick Take
Podcast: Russia-Ukraine headline risk added to already volatile mix


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, forex and financials up until last Tuesday, February 8. A week that included the much stronger than expected US report, but not last Thursday’s CPI shocker. The job report helped send US 10-year Treasury yield to a two-year high while stocks resumed their decline as the market priced in a more aggressive pace of US rate hikes. The dollar traded softer, especially against the euro, while a near unchanged week in commodities hid the fact that most raw materials saw strong gains with the exception of few led by a slump in natural gas.

Commodities
The Bloomberg Commodity Spot index reached a fresh record high during the week before ending close to unchanged after an 11% loss in natural gas offset broad gains across most other commodities and sectors. Once again, however, the continued turmoil in stocks and bonds lifting volatility probably prevented leveraged funds from adding exposure. As a result the combined net long across 24 major commodity futures held steady at 2.1 million lots. Long liquidation across the energy sector together with pockets of risk reduction across the agriculture sector led by corn and soybeans helped offset net buying of gold, copper, soybeans, cocoa and cattle.

Energy: Instead of adding fresh longs as crude oil rallied to a seven year high, speculators instead cut their net long for a third consecutive week. A decision probably driven by a loss of momentum as the market focused on the prospect for an Iranian deal, as well as elevated volatility across other assets forcing a broad reduction in exposure. During the past three weeks, an +8% rally in crude oil up until last Tuesday triggered a 5k lot increase in the gross short to 102k lots (One lot equals 1000 barrels) while profit taking reduced the gross long by 35k lots to 621k lots. Other major changes was a 30% reduction in the NY Harbor ULSD Diesel long while the the 11% collapse in natural gas only attracted a 5% reduction driven by fresh short selling.

Metals: Speculators continued to chase the recent volatile price action in gold, and following a 55k reduction the previous week after the hawkish FOMC meeting, the net long rose 22k lots to 85k lots (One lot equals 100 ounces) on a combination of fresh longs and short covering. Gold’s relative big price swings within an established range tends to be an unprofitable period for many leveraged funds as they are constantly forced to adjust positions amid a constant changing technical outlook. In addition, correlation tracking trading ideas continue to suffer with golds ability to withstand surging real yields forcing short covering.

Silver’s near 3% rally triggered some additional long liquidation with the net falling to 10k lots, a two-month low. Steady trading copper which was about to attempt another (failed) upside breakout attempt was bought to the tune of 5.5k lots lifting the net long to 24.8k lots, still some 73% below the record long interest from October 2020.

Agriculture: The grains sector was mixed with continued buying of soybeans lifting the net to a nine-month high at 166k lots, being more than offset by selling of corn and wheat, the latter seeing an increase in the net short to 29k lots, the most bearish since July 2020. In softs, the sugar long was cut to a fresh 20 month low, the cocoa long jumped 130% to 34.2k while a renewed rally in coffee lifted the net long by 8% to 56k lots.

Forex
Ahead of Thursday’s US CPI shocker speculators continued to be net sellers of dollars, this time driven by EUR and GBP buying, the previous weeks laggards. As a result the dollar long against ten IMM currency futures and the Dollar Index has now during the past four weeks more than halved, dropping to a 5-1/2-month low at $10.8 billion.


The most elevated position compared with the past twelve months remain the Aussie dollar short which after three weeks of short covering was sold again. The net short at 85.7k lots is just 6% below the record reached last month.

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

 

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article
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.