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COT: Commodity demand remains strong despite growing uncertainty
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 Tuesday, April 18. A week that saw some additional dollar weakness, rising stocks and rising US yields as rate cut expectations continued to moderate. In commodities, demand from managed money accounts remained strong with 24 out of 28 major commodity futures tracked in this seeing net buying, led by crude oil, copper, platinum and soybeans
Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities while in forex we use the broader measure called non-commercial.
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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This summary highlights futures positions and changes made by hedge funds across commodities and forex during the week to last Tuesday, April 18. A week that saw some additional dollar weakness, rising stocks and rising US yields as rate cut expectations continued to moderate.
Commodity sector:
The Bloomberg Commodity Index added 1.5% to trade higher for a fourth, led by broad gains across all sectors. Gains were led by a recovering grains sector and industrial metals while the energy and precious metals saw moderate gains. Across the 24 major commodity futures tracked in this update, all but four contracts saw net buying led by crude oil, copper, platinum, soybeans and corn. Overall the net long rose 146k lots to 1.33 million, an eight week high, and representing a notional value of $111 billion.
Crude oil: Despite some emerging price weakness that accelerated last Wednesday, the day after the reporting week ended, the buying of crude oil extended to a third week. The total net long in WTI and Brent rose 21.9k lots to 454k lots. Fresh longs drove the bulk (93%) of this increase, but they were left vulnerable to the correction that followed. This concluded a five-week roundtrip that saw a combine 232k lots of WTI and Brent being sold as the banking crisis drove a technical-driven sell-off before OPEC+ production cuts supported a 213k lots reversal.
For natural gas, the attempt to rally from the current $2 floor has been so far futile. However, it helped support a reversal of the positions held across four Henry Hub deliverable swaps and futures contracts to the first net-long in ten months. The combination of a year-to-date decline of around 50% and an elevated contango, which favors those holding short positions, has been a major obstacle preventing a sustained recovery.
Gold: A second week of net selling, this time primarily driven by an increase in the gross short following the failure to break above $2050, saw the net long reduced by 3.3k lots to 134k lots. The total 10.7k lots net reduction seen during the past two weeks, however, remain very small compared with the 121k lots that was added in the month that followed the banking crisis. Highlighting a market that would need to see and even bigger correction in order to trigger any forced long liquidation, a risk that remains relatively small as long gold holds above support in the $1955-60 area.
Platinum: Speculators responded to a 9% rally and a significant narrowing of the discount to gold by lifting the platinum net-long by a substantial 12.8k lots to 18.4k lots. This is the biggest one-week addition of length since September 2019. The change was driven by equal measures of fresh longs and short covering, and it highlights a metal that up until now has been under-owned as investors instead focused on gold and silver. The continued momentum last week continued to yield fresh longs, not least on Friday when the closed at $1127, a 13-month high. In the short-term developments that may raise the risk of pullback should the technical and/or fundamental outlook turn less bullish.
HG Copper: In response to the upside break during the reporting week, and which later on failed, the copper long jumped 230% to 19.8k lots. This highlights a market where traders are worried about missing the upside once it materializes, but also how failure turns to immediate long liquidation and with that, fresh price weakness as seen last Thursday and especially Friday. For now, the metal remains rangebound, having returned to the center of its current $3.8 to $4.2 trading range. However, with global visible exchange monitored stocks at the lowest seasonal level since 2008, the downside risks in our opinion remain limited.
Grains: Flows were mostly positive, with buying seen across all but one of the five major grain and oilseed contracts tracked in this update. Buying was concentrated in soybeans and corn, while small wheat buying was seen before the largest decline in a month. This occurred as Ukraine resumed grain shipments through the Black Sea corridor after a two-day halt, thereby supporting those holding the biggest CBOT wheat short in five years.
Softs: Broad buying extended to a fourth week, with length being added to the four contracts tracked in this update. The largest increase was in the Arabica coffee net long, which jumped 54% to 33.6k lots, and a halving of the cotton net short to 7.3k lots.
Forex
In forex, speculators were net sellers of the dollar for a fourth week running, resulting in a 15% increase in the gross short versus nine IMM futures and the Dollar Index to $11 billion, a nine-week high. The most notable flow involving selling of the greenback was short covering in CAD and CHF, while the GBP net flipped to a small net-long for the first time in fourteen months. Latest Market Insights
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