COT: Brent long cut to ten-year low; Metals left exposed to end of week slump COT: Brent long cut to ten-year low; Metals left exposed to end of week slump COT: Brent long cut to ten-year low; Metals left exposed to end of week slump

COT: Brent long cut to ten-year low; Metals left exposed to end of week slump

Ole Hansen

Head of Commodity Strategy

Key points:

  • Positions and changes made by speculators in commodities and forex in the week to June 4
  • Six weeks of net selling has cut the dollar long by 61%, with JPY, EUR and GBP in demand
  • A 5% slump in the BCOM index triggered the biggest fund exodus since December 2017
  • The WTI and Brent crude oil long falls to level only seen twice in the past 12 years, led by heavy Brent selling 
  • Limited reduction in metals left them exposed ahead of Friday's strong US jobs report

Forex

The non-commercial dollar long versus eight IMM futures and the dollar index extended a succession of weekly declines to six, and during this time the gross dollar long has been cut by 61% to USD 11 billion during a period where the dollar index drifted lower by just one percent. In the latest reporting week to June 4 the flows remained heavily skewed towards dollar selling, led by buying of 24k contracts of JPY (USD 1.9 billion equivalent), 10.3k EUR (USD 1.4 billion), 17.8k GBP (USD 1.4 billion). Partly offsetting these were small selling of CHF and CAD, driving their respective net shorts to biggest since 2018 and 2017 respectively. Despite a 5.1% Mexico election-driven slump, the MXN long nevertheless saw a small increase.

Non-commercial IMM futures positions versus the dollar in week to June 4

COT on Commodities

The latest Commitment of Traders (COT) report covered a week to June 4 when the Bloomberg Commodities Total Return Index slumped by 5%, with all sectors suffering declines after a stronger dollar and rising bond yields helped sour sentiment. On an individual sector level, losses were led by energy where crude oil slumped around 8% after OPEC+ made an ill-timed decision to discuss production hikes from October. This resulted in the Brent crude net long slumping to a ten-year low, inadvertently setting the stage for a recovery once the technical and/or fundamental outlook improves.

Elsewhere, the industrial metal sector dropped 5.3%, led by copper’s 6.5% decline after the recent strong rally deflated amid lack of fundamental support given the current weakness in copper-related data from China. Precious metal weakness was led by silver and platinum, both slumping by around 7% while gold managed a small gain. The grains sector saw renewed and broad weakness while supply worries supported softs.

Managed money accounts responded to these developments by turning net sellers of all sectors, and except for a handful of contracts, all 26 futures contracts tracked in this update saw net selling. Overall, the combined net long was almost cut in half to 446k contracts, the biggest one-week reduction since December 2017, primarily led by heavy selling of crude oil (-151k), soybeans (-46k), and corn (-80k).

Managed money long, short and net positions in the week to June 4
Energy: The WTI and Brent crude oil long slumped to a six-month low at 198k, led by a 69% drop in the Brent long to a ten-year low at just 46k. Only on two occasions in the last 12 years has the crude oil exposure been this weak, and on both occasions, a strong rebuild of longs occurred in the months that followed.
Metals: Major price slumps in silver and copper only triggered small reductions while gold saw a small amount of net buying. These developments left them all exposed to additional long liquidation following Friday’s strong jobs report and data pointing to weakness in China’s copper demand
Grains: Short selling resumed as the sector came under renewed pressures as supply risks faded, especially in wheat. Overall, all six futures contracts saw net selling led by soybeans (-45.5k to -59.7k) and not least corn (-79k to -213k).
In softs, the sugar short reached a four-year high following nine weeks of non-stop selling while the cotton short extended to a 15-month high. Small buying of cocoa and coffee were the outliers during a week of broad weakness.

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 main reasons why we focus primarily on the behavior of speculators, such as hedge funds and trend-following CTA's 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

Do note that this group tends to anticipate, accelerate, and amplify price changes that have been set in motion by fundamentals. Being followers of momentum, this strategy often sees this group of traders buy into strength and sell into weakness, meaning that they are often found holding the biggest long near the peak of a cycle or the biggest short position ahead of a through in the market.


Recent commodity articles:

31 May 2024: Commodity weekly: Strong month despite late decline in crude and fuel
27 May 2024: 
COT: Gold and crude see increased demand as dollar longs plummet
24 May 2024: 
Commodity weekly: agriculture surges, metals fall on fading rate cut hopes
23 May 2024: 
Podcast: 2024 is heavy metals
22 May 2024: 
Crude oil struggles near two-month low
17 May 2024: 
Commodity weekly: Metals lead broad gains 
16 May 2024: 
Gold and silver rally as soft US data fuels market optimism
15 May 2024: 
Copper soars to record high, platinum breaks out
14 May 2024: 
COT: Crude long slump; grain purchases surge
8 May 2024: 
Fund selling exacerbates softening crude outlook
8 May 2024: 
Grains see bumpy start to 2024 crop year
6 May 2024: 
COT: Commodities correction spurs muted selling response
3 May 2024: 
Commodity weekly: Grains boost, correction in softs and energy
2 May 2024: 
Copper's momentum-fueled rally halts amid weakening fundamentals
29 April 2024: 
COT: Gold bulls stand firm despite recent correction
26 April 2024: 
Commodity weekly: Sticky inflation and adverse weather focus
23 April 2024:
 What drives the gold and silver correction ?
22 April 2024: 
COT: Declining momentum may signal shift toward consolidation
19 April 2024: 
Commodity weekly focus on copper, gold, crude and diesel
17 April 2024: 
Copper rally extends to near two year high
16 April 2024: 
Crude oil's risk premium ebbs and flows
15 April 2024:
COT: Hedge funds propel multiple commodities positions beyond one-year highs
12 April 2024: 
Gold and silver surge at odds with other market developments
10 April 2024: 
Record breaking gold highlights silver and platinum's potential
8 April 2024:
COT: Speculative interest in metals and energy gain momentum
5 April 2024: 
Commodity market sees broad gains, enjoying best week in nine months 
4 April 2024: 
What's next as gold reaches USD 2,300
3 April 2024: 
Q2 Outlook: Is the correction over?
3 April 2024: 
Cocoa: A 50% farmgate price boost a step in the right direction
2 Apr 2024:
COT: Gold and crude longs maintained amid strong underlying support

Disclaimer

The Saxo Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-hk/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo or its affiliates.

Saxo Capital Markets HK Limited
19th Floor
Shanghai Commercial Bank Tower
12 Queen’s Road Central
Hong Kong

Contact Saxo

Select region

Hong Kong S.A.R
Hong Kong S.A.R

Saxo Capital Markets HK Limited (“Saxo”) is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo holds a Type 1 Regulated Activity (Dealing in Securities); Type 2 Regulated Activity (Dealing in Futures Contract); Type 3 Regulated Activity (Leveraged Foreign Exchange Trading); Type 4 Regulated Activity (Advising on Securities) and Type 9 Regulated Activity (Asset Management) licenses (CE No. AVD061). Registered address: 19th Floor, Shanghai Commercial Bank Tower, 12 Queen’s Road Central, Hong Kong.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products may result in your losses exceeding your initial deposits. Saxo does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo does not take into account an individual’s needs, objectives or financial situation. Please click here to view the relevant risk disclosure statements.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-hk/about-us/awards.

The information or the products and services referred to on this site may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and services offered on this website are not directed at, or intended for distribution to or use by, any person or entity residing in the United States and Japan. Please click here to view our full disclaimer.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc. Android is a trademark of Google Inc.