COT: Commodities react to Fed bailout and OPEC+

Ole Hansen

Head of Commodity Strategy

Summary:  Hedge funds were net-buyers of commodities in the week to April 14. A week that besides the Easter break also produces another Fed bailout and a historic OPEC+ agreement. The market reaction in terms of position changes did however not correspond much with the price action where gold jumped and crude oil and natural gas slumped. Sellers returned to agriculture commodities on demand concerns.


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.

The below summary highlights futures positions and changes made by hedge funds across 24 major commodity futures up until last Tuesday, April 14.

It was a mixed week as the sector reacted to the Fed’s pre-Easter $2.3tn bailout and the failed attempt by OPEC+ to support crude oil amid a historic slump in global demand. The net-long in crude oil and natural gas both rose despite much weaker price action. A strong rally in precious metals and copper following the Fed announcement failed to attract much in terms of fresh longs. Broad-based selling hit the agriculture sector, not least soybean meal, corn and sugar.

Energy: For a second straight week hedge funds added length in the belief that oil’s spectacular crash had bottomed out and on hopes that OPEC+(+) would support the price. That hope was quashed after the OPEC+ group announced a 9.7m barrels/day cut which due to lack of compliance and the way it was calculated may end up removing considerable less than what the headline figure imply. The combined net-long in WTI (18.5k lots) and Brent (11k) crude oil rose by 11% to 269k lots, a six-week high.

Natural gas was bought despite trading lower by 11% on the week.  Gas has seen continuous buying since hitting a record short on February 11. The prospect for lower US shale oil production due to the price collapse has raised expectations for a price supportive drop in shale oil related gas production. For now the market remains range-bound with several failed selling attempts below $1.55/MMBtu given longs some confidence.

NOTE on oil ETFs: During the past month the largest actively-managed long-only oil-focused ETFs, such as USO and UCO boosted their net holdings of crude by more than 400%. These ETF’s are predominantly positioned at the front of the futures curve and will be exposed to rolling losses every month until the market fundamentals eventually stabilizes, and that could take several months. On Friday, the soon to expire WTI May contract (CLK0) closed almost 40% below the June contract. On that basis we cannot reiterate enough how difficult and potential costly it can be to try to bottom fish “cheap” oil when the fundamentals are this poor as reflected through a very steep contango.

Metals: Gold’s 5% rally following the Fed’s latest bailout only helped attract 10k lots of fresh net buying. Perhaps a sign that the CTA section of speculators did not find enough support from other markets to justify adding additional length. Despite reaching a fresh 7-year high the net at 199k lots was 30% below the recent peak on February 25. The lack of short positions, just 6k lots versus 205k longs, will be a concern to those holding long positions, should the current correction extend beyond support at $1650/oz.

Another week of net-selling reduced the silver net-long to a ten-month low at just 15k lots. While flows, predominantly retail, into silver-backed ETFs have jumped and set new records following the March slump, hedge funds are worried about silver’s historical troubled relationship with recession. A theme that was highlighted by the IMF last week when they said the world faces worst recession since the Great Depression of the 1930’s. A theme that also saw copper being net-sold despite rallying on China and Fed news.

Agriculture: The hoarding of key food commodities during the initial phase of the Covid-19 spreading has faded with the market concluding supplies are ample. Lack of demand due to lock downs and slowing growth have instead been attracting selling of soybean meal on lower feed demand as well as corn and sugar due to their bio fuel link to oil. Supply disruptions and lack of farmhands to handle the coming coffee harvest in South America has kept that market supported. Continues buying since mid-February has increased the net-long to 21k lots, a three months high.

What is the Commitments of Traders report?

The Commitments of Traders (COT) report is issued by the US Commodity Futures Trading Commission (CFTC) every Friday at 15:30 EST with data from the week ending the previous Tuesday. The report breaks down the open interest across major futures markets from bonds, stock index, currencies and commodities. The ICE Futures Europe Exchange issues a similar report, also on Fridays, covering Brent crude oil and gas oil.

In commodities, the open interest is broken into the following categories: Producer/Merchant/Processor/User; Swap Dealers; Managed Money and other.

In financials the categories are Dealer/Intermediary; Asset Manager/Institutional; Managed Money and other.

Our focus is primarily on the behaviour of Managed Money traders such as commodity trading advisors (CTA), commodity pool operators (CPO), and unregistered 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.
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