COT: Crude oil and grains bought despite Jackson Hole jitters COT: Crude oil and grains bought despite Jackson Hole jitters COT: Crude oil and grains bought despite Jackson Hole jitters

COT: Crude oil and grains bought despite Jackson Hole jitters

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 August 23. A week that saw financial markets trade increasingly nervous with stocks selling off while the dollar and yields rose ahead of Friday’s speech by Federal Reserve Chair Jerome Powell. Developments that triggered fund selling in precious metals while energy and grains was in demand due to a tightening supply outlook


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 during the week to August 23. A week that saw financial markets trade increasingly nervous ahead of Friday’s Jackson Hole speech from Federal Reserve Chair Jerome Powell. Stocks sold off while the dollar and bonds yields rose in anticipation of a hawkish message. In the end that was exactly what Powell delivered on Friday when he cautioned about loosening monetary conditions prematurely while flagging the likely need for restrictive monetary policy for longer than the market had priced in to curb high inflation.

Commodities

The Bloomberg Commodity index rose 1.6% during the reporting week with concerns about the impact on demand from central banks hiking rates to curb economic growth being more than offset by concerns about a tightening supply outlook, especially across energy and key food commodities. Precious metals being the only sector struggling amid the mentioned dollar and yield strength.

Overall hedge funds increased their exposure for a fourth consecutive week, this time by 13% to 1.1 million contracts, some 264k above the end of July low point. 

Energy: Funds increased bets on rising crude oil prices for the first time in five weeks with the combined long in WTI and Brent being lifted by 22% to 338k lots. This in response to a near +8% rally during the week as the focus returned to a continued tight supply outlook with the gas-to-fuel switching providing an additional layer of support. While the combined gross long was increased by 20k lots, it was a 40k lots capitulation among short sellers that provided the main input to the change.

Surging gas prices driving increased demand for diesel helped lift gas oil by 10% and the net long by 24% to 76.5k lots, still only half the 152k lots peak seen from last October. Natural gas traders cut their net short by 66% with the bulk of the change being driven by fresh longs being added. 

Metals: Precious metals saw renewed selling ahead of Jackson Hole with the stronger dollar and rising yields triggering a fresh round of short selling by funds. The result being a 34% reduction in the gold long to 30k while silver and platinum saw big increases in already established net short positions. Copper found support after China’s government announced fresh initiatives to support an economy struggling with Covid lockdowns and a property sector crisis. The result being a 71% reduction in the net short to -4.8k lots, an 11-week low. 

Agriculture: The grains sector, led by corn and soybeans, continued to recover from the June to July 25% correction. Buyers bought the sector for a fourth consecutive week with an improved fundamental outlook due to adverse weather in the US and China triggering fresh buying interest. The bulk of the 111k lots increase during this time has been driven by corn with the soybean complex also picking up steam while the two wheat contracts have seen net selling during this time.

Forex

The forex market responded to a 1.6% increase in the Dollar index ahead of Jackson Hole by turning broad buyers albeit in small size of dollars against nine IMM currency futures. The two exceptions being GBP and CHF where short covering reduced the net short in both. The euro net short reached 44k lots or €5.5 billion, the highest since March 2020 when the market was in covid panic mode. Overall the gross dollar long reached a three week high at $18 billion, down 24% from last months peak and high for the year at $23.8 billion.

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

 

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research 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. To the extent that any content is construed as investment research, you must note and accept that the 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 under relevant laws.

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

Saxo Bank (Schweiz) AG
Beethovenstrasse 33
CH-8002
Zurich
Switzerland

Contact Saxo

Select region

Switzerland
Switzerland

All trading carries risk. Losses can exceed deposits on margin products. You should consider whether you understand how our products work and whether you can afford to take the high risk of losing your money. To help you understand the risks involved we have put together a general Risk Warning series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. The KIDs can be accessed within the trading platform. Please note that the full prospectus can be obtained free of charge from Saxo Bank (Switzerland) ltd. or the issuer.

This website can be accessed worldwide however the information on the website is related to Saxo Bank (Switzerland) Ltd. All clients will directly engage with Saxo Bank (Switzerland) Ltd. and all client agreements will be entered into with Saxo Bank (Switzerland) Ltd. and thus governed by Swiss Law.

The content of this website represents marketing material and has not been notified or submitted to any supervisory authority.

If you contact Saxo Bank (Switzerland) Ltd. or visit this website, you acknowledge and agree that any data that you transmit to Saxo Bank (Switzerland) Ltd., either through this website, by telephone or by any other means of communication (e.g. e-mail), may be collected or recorded and transferred to other Saxo Bank Group companies or third parties in Switzerland or abroad and may be stored or otherwise processed by them or Saxo Bank (Switzerland) Ltd. You release Saxo Bank (Switzerland) Ltd. from its obligations under Swiss banking and securities dealer secrecies and, to the extent permitted by law, data protection laws as well as other laws and obligations to protect privacy. Saxo Bank (Switzerland) Ltd. has implemented appropriate technical and organizational measures to protect data from unauthorized processing and disclosure and applies appropriate safeguards to guarantee adequate protection of such data.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc.