COT: Crude long hits 12-year low ahead of FOMC bounce COT: Crude long hits 12-year low ahead of FOMC bounce COT: Crude long hits 12-year low ahead of FOMC bounce

COT: Crude long hits 12-year low ahead of FOMC bounce

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 last Tuesday, December 12. A week that showed how investors positioned themselves ahead of the FOMC meeting last Wednesday when Powell delivered his pivot towards rate cuts. The commodity sector continued to see heavy net selling by hedge funds, once again driven by the energy sector which saw bullish bets on WTI and Brent slump to a 12-year low.

Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities while in forex we use the broader measure called non-commercial.

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.

This summary highlights futures positions and changes made by hedge funds across commodities and forex in the week to last Tuesday, December 12. A week that showed how investors positioned themselves ahead of the FOMC meeting, where Powell delivered his pivot towards rate cuts. An announcement that triggered a buy-everything-rally across equities while commodities benefitted from short covering after hedge funds had cut bullish bets to a 3-1/2 year low. In addition, the dollar was sold for a fourth week resulting in a fresh short position emerging against its major peers. 


Returning to the reporting week and the commodity sector continued to see heavy net selling by managed money accounts, such as hedge funds and CTA’s. Overall, the net long across the 24 major commodity futures markets tracked in this report was reduced by 46% to 274k contracts, a 3-½-year low. Since early October the net long has collapsed by 82% during a time when the Bloomberg Commodity Index has suffered a relatively small 6% correction to a one-year low. 

The sector driving the weakness during this nine-week period has almost exclusively been the energy sector, down 21%, followed by a 3% drop across industrial metals, while precious metals and to a lesser extent the agriculture sector helped offset the losses with gains of 8% and 2% respectively. 

These developments highlight an increasingly under owned asset class which has struggled in 2023 amid growth worries in China and the wider world, and a sharp rise in funding costs leading industries to reduced excess inventories. It also highlights a sector which given the right circumstances may see a strong recovery in 2024 once the technical and/or fundamental outlook becomes more supportive, thereby leading to fresh buying and short covering from speculators. Drivers that may trigger such a change could be rate cuts lowering the funding costs and with that the inherent contango leading to industry restocking of inventories, OPEC maintaining a tight control of the supply of crude oil, and not least signs of tightness across key commodities that will help offset the risk of an economic slowdown across key economies. 

Overall, 15 out of the 24 futures contract tracked saw net selling led by crude oil, natural gas, gold, silver, soybeans and sugar while pockets of demand primarily supported corn, wheat and cotton.
Almost uninterrupted selling since Sept 29 culminated before the FOMC meeting when the WTI and Brent crude oil managed money long slumped to an 11-year low at 171k lots, primarily driven by short sellers in Brent. With positioning this low, the risk/reward increasingly point to the upside once supported by technical price developments. A 15% slump in natural gas drove a more than doubling of the net short to a nine-month low.
Ahead of the FOMC driven recovery, speculators cut their exposure in silver by 14k to 8.9k lots, and gold by 21k to 111.3k lots. Platinum was neutral while an elevated short position in palladium of 10k lots supported 24% end of week surge. Meanwhile, the copper long saw a small 1k reduction to 6.9k lots.
The biggest corn short since 2020 saw a 22% reduction as prices rallied by 3.6% while a 10% surge in wheat on rising demand from China helped trigger a 20% reduction in the net short to 96k contracts. A halving of the soybean net long to 37k contracts however did not prevent a small weekly increase in the sector long.
In softs, the raw sugar long was cut in half to 54k lots, a one-year low, after the price suffered a 10% setback. Cocoa and coffee longs stayed elevated while renewed buying of cotton helped increase the net long by 300%.
In forex, the fourth week of dollar selling ahead of FOMC saw the gross short against eight IMM futures jump to $4.4 billion with all pairs except EUR seeing net buying. Most notably through JPY ($2.1 bn eq.), CHF and AUD short covering, and fresh longs in GBP

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