COT: Funds showing little faith in crude oil rally
Fresh data from the ICE Futures Europe Exchange reveals that hedge funds lacked confidence in last week's surging oil market.
Head of Commodity Strategy
Summary: The latest Commitments of Traders report from the US Commodity Futures Trading Commission covering the week to October 23 showed that leveraged funds cut their net-long position across 26 major commodities futures contracts by four percent.
Saxo Bank publishes two 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.
To download your copy of the Commitment of Traders: Commodities report for the week ending October 23, click here.
The latest Commitments of Traders (COT) report from the US Commodity Futures Trading Commission covering the week to October 23, showed that leveraged funds cut their net-long position across 26 major commodities futures contracts by four percent.
The reasons why we primarily focus on the behaviour of leveraged funds:
• 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
While nineteen contracts were net-sold the broad-based reduction was limited in size due to the strong buying of a few commodities, most noticeably sugar, coffee, and precious metals. The energy sector remained under selling pressing with the combined long in crude oil slumping to a 15-month low. Precious metals were bought for a second week and with the tailwind from short-covering fading, gold and silver are now increasingly in need of fundamental support to carry them higher.
Of all the commodities coffee and sugar saw the biggest amount of buying last week in response to the ongoing rally which has seen both contracts rally by more than 30% during the past month. Last week, however, coffee found resistance at $1.25/lb and sugar at 14.25 cents/lb as the tailwind from short-covering began to fade and the market awaited the impact of the Brazilian presidential election.
It was won by Jair Bolsonaro and the swing to the right could see the resource-rich economy open up to private investments. The CME BRL future trades higher by 1.5% while in Tokyo overnight an ETF tracking the Bovespa Index jumped by more than 10%. It was the rally in the BRL combined with the big short positions that helped drive the surge this past month. This rally may now begin to fade unless some fundamental support begins to emerge.