COT: Speculators focus on energy crunch and dollar strength

This summary highlights futures positions and changes made by hedge funds across commodities, forex and financials up until last Tuesday, September 28. A week that saw continued risk adversity drive stocks lower and the dollar higher in response to China property sector debt concerns, the global energy crunch, and surging treasury yields on heightened Fed taper expectations.

Commodities

The Bloomberg Commodity index, which does not include surging prices in EU and Asian gas prices, coal and carbon emissions, jumped 5.4% in the week to September 28, with gains seen across most sectors led by energy and soft commodities. Overall speculators were net buyers of 16 out of the 24 major commodity futures tracked in this update, thereby supporting a 6% increase in the overall net exposure to 1.99 million lots. 

The global energy crunch was the main focus with natural gas surging 21% on the week while crude oil jumped close to 7% in anticipation of rising demand from consumers switching to diesel, propane and gas oil from punitively expensive gas and coal. Interesting to note that surging natural gas prices only led to a small 2% increase in the net long, with the increase primarily driven by short covering.

The biggest exception being gold, which saw bullish bets cut by one-third as treasury yields jumped and the dollar rose. Silver buyers returned just before prices slumped again last Wednesday.

Buyers returned to the grains sector for the first time in six weeks with soybeans and corn seeing renewed demand. Cotton’s 11% jump to a ten-year high helped drive the net long to the highest since May 2018 while coffee’s return to $2/lb attracted fresh longs and short covering.

Forex

Continued dollar strength in response risk adversity driven by falling stocks, China property sector debt concerns, higher yields and Fed taper expectations helped drive a 14% increase in the greenback long against ten IMM currency futures and the Dollar index to a fresh 19-month high at $17.8 billion. The reporting week did not include last Wednesday’s breakout when the euro dropped to its weakest level since July 2020 while the broad Bloomberg Dollar Index hit an 11-month high.

Biggest casualty was the euro where 11.2k lots of selling took the net back to neutral. The two biggest short positions in yen and AUD extended further with the latter reaching a record high at 86.4k lots. Buying of GBP, NZD and not least CAD helped reduce the overall impact by the equivalent of $1 billion.

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