COT: Oil and gold bought ahead of Mideast flare-up

Ole Hansen

Head of Commodity Strategy

Summary:  The COT report covering the week to December 31 showed a continued accumulation of speculative longs. From a record low in August the net long across 24 commodity futures reached an 18-month high. Not least precious metals and energy got bought just before renewed Middle East tensions gave prices another boost


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.

Hedge funds interest for commodities have recovered strongly since August when the net-long across 24 futures contracts hit a record low of just 38k futures lots. It was the resumption of talks between China and the US, that led to the December phase one deal, which helped support renewed buying interest. Not least across the agriculture sector where the net has swung from a 607k lots short in August to 247k lots long currently.

Buying interest was concentrated in crude oil, gold, soybeans and wheat. The soft sector ran into profit taking after coffee and sugar gave back some of their early December gains. 

Hedge funds maintained buying interest in crude oil ahead of year end. This following the December 6 decision by the OPEC+ group to cut production further throughout Q1. During this time the combined net long in Brent and WTI has risen by 44% to 694k lots or 694 million barrels. This was the biggest bet on a continued rise in oil prices since last April. Given its role as the global benchmark, Brent continues to see the biggest interest from funds taking advantage of the elevated roll yield (backwardation) achieved through holding and rolling a long position.

It will now be interesting to see how investors reacted to the latest rally which has been driven by fear of Middle East supply disruptions. The next update covering the week to January 7 will be released by the CFTC this Friday after the close. 

Funds increased long positions across all five metals tracked in this report. This in response to the rally seen in both precious and industrial metals throughout December. Gold (+20k lots) finally broke higher following months of sideways trading. That rally supported renewed buying in silver (+6k) and platinum (+6k) with the latter reaching a record long of 48k lots. The geopolitical bid lifting gold this week has seen platinum fall behind with its discount to gold rising by $50 to $600 currently.

Copper meanwhile saw a modest 851 lots being added after the trade deal rally faded.

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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