COT: Commodity short sellers left exposed as dollar drops

COT: Commodity short sellers left exposed as dollar drops

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, September 6. A week that saw a sharp deterioration in risk appetite with global stock markets responding negatively to concerns about global growth and sharply higher bond yields as central banks signalled willingness to hike rates agressively. The commodity sector dropped by more than 4% in response to these developments, resulting in a broad reduction in hedge funds positions, most notably in crude oil, natural gas, gold and soybeans


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 Tuesday, September 6. A week that saw a sharp deterioration in risk appetite with global stock markets responding negatively to concerns about global growth, not least in China where lockdowns spread again. In addition, the prospect of sharply higher rates by central banks to combat runaway inflation saw US bond yields spike while the Bloomberg Dollar Index hit a fresh record high. 

Commodities

The commodity sector dropped by more than 4% in response to the deteriorating growth outlook with the stronger dollar adding an additional layer of uncertainty. All sectors suffered losses led by energy and industrial metals and speculators reacted accordingly by cutting bullish bets across 19 out of the 24 major commodity futures markets tracked in this report. The 138k lots reduction was the result of 74k lots of longs being sold and 64k lots of fresh short positions being added. A development that supported the bounce that followed last Tuesday’s reporting deadline when the dollar reversed lower, thereby supporting a general recovery in risk appetite. 

Energy: 

Funds sold a combined 38k contracts of crude oil and fuel products in a week where China and global demand worries, as well as the stronger dollar helped trigger steep losses across the five crude oil and fuel product futures tracked in this update. In addition, the overall market participation continued to decline with the total open interest falling to 4.8 million contracts, the lowest level of open interest since November 2014.

Crude oil drifted lower during the reporting week to last Tuesday and with key support not being challenged until the following day, the main change was a 17.5k lots reduction in the Brent gross longs while the WTI held steady with both and long and short positions seeing small increases. The natural gas net short more than doubled to 49k lots after the notoriously volatile contract slump around 10% below $8 per MMBtu just two weeks after hitting $10 per MMBtu for the first time in 14 years.

Metals:

The metal sector, led by gold, saw broad selling in response to multiple headwinds, the most important being the stronger dollar, rising treasury yields and China growth worries. The latter hitting copper and with that also silver, the result being additional short selling lifting the silver net short to a 40-month high at 24.6k lots. The overall net reduction of 30k lots was driven by a 4k lots reduction in longs and fresh short selling of 26k lots, a development which just like energy raised the risk of a short-covering rebound should the technical and/or fundamental outlook become more supportive. This is what happened after Thursday’s ECB meeting and verbal intervention by Bank of Japan officials helped weaken the dollar.

Agriculture

Funds turned net sellers of the grain and soybean sector for the first time in six weeks. The relatively small 15k lots reduction was driven by reductions across the three soybean contracts. Buying of corn meanwhile extended to a sixth week while speculators maintained an overall short position in CBOT and Kansas wheat futures. In softs, some of the recent strong buying was reversed led by sugar and cocoa.

 

Forex

Speculators responded to continued dollar strength in the week to September 6 by increasing bullish bets via the Dollar index and against nine IMM futures. The 10% jump in the combined dollar long to $20.2 billion, a five-week high, was primarily driven by heavy selling of GBP and JPY. The Sterling net jumped 63% to 50.4k lots ($3.6 bn) while the 3% depreciation of the JPY drove a 52% increase in the net short to 58.2k lots ($5.1 bn).

It was however interesting to note that renewed EURUSD selling below parity helped attract the first major round of short covering in four weeks. Fading momentum and negative divergence between the falling price and rising RSI pointed to selling fatigue and traders growing wary ahead of Thursday ECB rate decision. 

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

01 /

  • Equity outlook: The high cost of global fragmentation for US portfolios

    Quarterly Outlook

    Equity outlook: The high cost of global fragmentation for US portfolios

    Charu Chanana

    Chief Investment Strategist

  • Commodity Outlook: Commodities rally despite global uncertainty

    Quarterly Outlook

    Commodity Outlook: Commodities rally despite global uncertainty

    Ole Hansen

    Head of Commodity Strategy

  • Upending the global order at blinding speed

    Quarterly Outlook

    Upending the global order at blinding speed

    John J. Hardy

    Global Head of Macro Strategy

    We are witnessing a once-in-a-lifetime shredding of the global order. As the new order takes shape, ...
  • Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Quarterly Outlook

    Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Jacob Falkencrone

    Global Head of Investment Strategy

  • Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    Quarterly Outlook

    Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    John J. Hardy

    Global Head of Macro Strategy

  • Equity Outlook: The ride just got rougher

    Quarterly Outlook

    Equity Outlook: The ride just got rougher

    Charu Chanana

    Chief Investment Strategist

  • China Outlook: The choice between retaliation or de-escalation

    Quarterly Outlook

    China Outlook: The choice between retaliation or de-escalation

    Charu Chanana

    Chief Investment Strategist

  • Commodity Outlook: A bumpy road ahead calls for diversification

    Quarterly Outlook

    Commodity Outlook: A bumpy road ahead calls for diversification

    Ole Hansen

    Head of Commodity Strategy

  • FX outlook: Tariffs drive USD strength, until...?

    Quarterly Outlook

    FX outlook: Tariffs drive USD strength, until...?

    John J. Hardy

    Global Head of Macro Strategy

  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

None of the information provided on this website constitutes an offer, solicitation, or endorsement to buy or sell any financial instrument, nor is it financial, investment, or trading advice. Saxo Capital Markets UK Ltd. (Saxo) and the Saxo Bank Group provides execution-only services, with all trades and investments based on self-directed decisions. Analysis, research, and educational content is for informational purposes only and should not be considered advice nor a recommendation. Access and use of this website is subject to: (i) the Terms of Use; (ii) the full Disclaimer; (iii) the Risk Warning; and (iv) any other notice or terms applying to Saxo’s news and research.

Saxo’s content may reflect the personal views of the author, which are subject to change without notice. Mentions of specific financial products are for illustrative purposes only and may serve to clarify financial literacy topics. Content classified as investment research is marketing material and does not meet legal requirements for independent research.

Before making any investment decisions, you should assess your own financial situation, needs, and objectives, and consider seeking independent professional advice. Saxo does not guarantee the accuracy or completeness of any information provided and assumes no liability for any errors, omissions, losses, or damages resulting from the use of this information.

Please refer to our full disclaimer for more details.

Saxo
40 Bank Street, 26th floor
E14 5DA
London
United Kingdom

Contact Saxo

Select region

United Kingdom
United Kingdom

Trade Responsibly
All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more
Additional Key Information Documents are available in our trading platform.

Saxo is a registered Trading Name of Saxo Capital Markets UK Ltd (‘Saxo’). Saxo is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871. Registered in England & Wales.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo assumes no liability for any loss sustained from trading in accordance with a recommendation.

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. Android is a trademark of Google Inc.

©   since 1992