COT: Crude oil sees fastest buying pace in two years
Head of Commodity Strategy
Summary: This COT report highlights futures positions and changes made by hedge funds across commodities, forex and financials up until last Tuesday, January 18. A reporting week that ended with a deepening selloff in stocks as bond yields continued to climb and where commodities continued do attract demand drifen by tightness in energy, industrial metals and some soft commodities
This summary highlights futures positions and changes made by hedge funds across commodities, forex and financials up until last Tuesday, January 18. A reporting week that ended with a deepening selloff in stocks as bond yields continued to climb on speculation the Federal Reserve will have to boost interest sooner and by more than previously expected. Treasuries fell along the curve, pushing yields up to levels last seen before the pandemic shook the markets nearly two years ago. The dollar held steady while commodities continue to attract demand with tightness in energy, industrial metals and some soft commodities shielding the asset class from being caught up in the risk aversity seen elsewhere.
The Bloomberg Commodity Index rose 1.3% during the week, with strong gains in energy and softs, and to a lesser extent metals offsetting another week of losses across the grains sector. These developments helped drive 51k lots of net buying across 24 major commodity futures from large speculators, bringing the total net long to a two-month high at two lots. Buying was concentrated in WTI crude oil, gas oil, natural gas and cocoa with net selling mostly impacting the grains sector.
Energy: Speculators continued their rapid accumulation of length in crude oil futures and during the past four weeks, the net buying of WTI and Brent reached 155k lots, a rapid four-week accumulation of this magnitude was last seen in January 2020, just before the pandemic temporary sucked the life out of the market. The combined net long reached a ten-week high at 559k lots or 559 million barrels with WTI buying of 23.7 lots offsetting a small 2k lot reduction in Brent. Even though it was small, the reduction in Brent may signal fading belief in its short term ability to break above $90, a level that was almost reached during the week.
Metals: The gold net long was reduced for a third week, albeit at a slower pace. The 4% reduction to 84.5k was primarily driven by fresh short-selling from funds fading the rally towards $1830, a recent resistance level now turned support. Silver’s emerging relative strength which during the week saw the gold-silver ratio drop by 3.4% helped drive a 33% increase in the net long to 23.8k lots, a seven-week high. Copper’s one percent weakness did not deter traders, as they increased their net long to near a three month high at 28.2k lots. In platinum, the net short was reduced by 62% to just 1.3k lots.
Agriculture: Speculators reduced length in soybeans and corn while wheat was mixed with buying of Chicago and selling of Kansas. In softs, cocoa and coffee saw strong buying interest. Despite rallying by 3% the net long in sugar kept falling to reach a 19-month low., thereby making it a potential strong recovery candidate with surging fuel prices raising the prospect for increased bio-fuel production. Cotton's 4.4% jump only attracted a small amount of additional buying from funds seeking to get involved in the commodity with the highest roll yield, currently around 20% on a one-year basis.
In forex, speculators responded to the latest stock market weakness by aggressively selling dollars. Against ten IMM currency futures and the Dollar Index the net dollar long was reduced by 30% to a four month low at $16.5 billion, and the most aggressive week of dollar selling since June 2020. All of the major IMM futures contracts with the exception of CHF got bought, led by EUR where 18.6 lots of buying tripled the net long to 24.6k lots. The Sterling short was removed following 29k lots of buying while the CAD position flipped to a net long of 7.5k lots after speculators bought a total of 14.9k lots.
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
Latest Market Insights
Outrageous Predictions 2023: The War Economy
- The constantly growing global need for energy drives the world's richest to huddle up and launch a R&D project in a size the world hasn't seen since the Manhattan Project gave the US the first atomic bomb.
French President Macron resignsThe political stalemate in France and the rise of Marie Le Pen following the 2022 elections corners President Macron, forcing him to give up on politics and resign from his position. At least for now.
Gold rockets to USD 3,000 as central banks fail on inflation mandateAs markets and central banks realise that the idea that inflation is transitory is wrong, and that prices will remain higher for longer, gold is sent through the roof, hitting a price tag of USD 3,000
EU Army forces EU down path to full unionWith continued challenges in the region and a US military that isn't aggressively enacting its former role as global policeman, the European Union agrees to create its own armed forces, bringing the whole region closer.
A country agrees to ban all meat production by 2030In an effort to become one of the global leaders on the path to net-zero emissions, one country decides to not only put a heavy tax on meat, but to ban domestic production entirely.
UK holds UnBrexit referendumFollowing a recession and domestic pressure, the United Kingdom is thrown into political turmoil that will end with a vote to wind back Brexit.
Widespread price controls are introduced to cap official inflationHistory tells us that with the war economy comes rationing and price controls. And this time is no different, as policymakers introduce strict price controls that lead to a range of unintended consequences.
OPEC+ & Chindia walk out of the IMF, agree to trade with new reserve assetSanctions against Russia have caused widespread turmoil due to US Dollar moves in countries across the globe that don't consider the US an ally. To relieve themselves from this, they leave the IMF and create a new reserve asset.
USDJPY fixed to the USD at 200 as Japan overhauls financial systemFollowing the challenges that faced the Japanese Yen in 2022, the Bank of Japan attempts to keep the currency from sliding. Unsuccessful on the long-term, Japan will launch a reset of its entire financial system.
Tax haven ban kills private equityWith the war economy comes an increased focus on national interests and sovereign nations' ability to assert themselves. In that regard, the OECD countries turn their attention on tax havens and pull the big guns out, banning them altogether.
Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)