COT: Russia-centric commodities in focus last week
Head of Commodity Strategy
Summary: The COT reports published weekly by the US CFTC highlight futures positions and changes made by hedge funds across commodities, forex and financials. This update covers the week to February 22, and once again it was a reporting week that ended a few days before a major risk event took place, this time Russia’s attack on Ukraine last Thursday. An attack that triggered major moves across most asset classes, not least commodities where speculators reacted to the prospect for the conflict impacting several commodities from oil and gas to gold and wheat.
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Saxo Bank publishes 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.
This summary highlights futures positions and changes made by hedge funds across commodities, forex and financials up until last Tuesday, February 22. Once again a reporting week that ended a few days before a major risk event took place, this time Russia’s attack on Ukraine last Thursday which triggered major moves across most asset classes. During the week in question risk appetite was already being challenged with the MSCI World Index as well as the S&P 500 Index losing more than 3% while US treasury yields reversed lower with the 10-year tenor falling 10 basis points to 1.94%
The dollar traded unchanged, with speculators continuing to reduce their net longs, before rallying in the days that followed while commodities saw strong gains led by grains, energy and precious metals.
The Bloomberg Commodity Spot index rose 3.3% in the week to last Tuesday, thereby reaching a fresh record high. Gains were led by commodities and sectors most at risk of being impacted by supply disruptions from Russia and Ukraine. These were crude oil, gas, palladium and grains while gold and silver received a safe haven bid amid lower bond yields and stock market turmoil.
Speculators reacted to these developments by adding length to gold and silver as well as grains, while net selling of crude oil surprisingly extended into a fifth week. Overall the total exposure across 24 major commodity futures rose 4% to 2.2 million lots representing an $8.4 billion increased in the nominal exposure to $171 billion.
Energy: Large money manager accounts cut, perhaps somewhat surprisingly, their combined lenght in crude oil for a fifth week by 5.6k lots to 509k lots. A $1.7/b widening of the WTI/Brent spread to $4.8/b during the week, now at at $6.9/b, helped drive a diversion between the two with the Brent crude oil long rising by 13.4k lots while the WTI long was cut by 19k lots. Fuel products and natural gas all saw their net longs being reduced.
Metals: The gold long jumped 28% to 161k lots as the price returned to $1900, and following three weeks of buying the net long was lifted by 98k lot to the highest since November. Such an aggressive position adjustments within a relative short period of time always tend to create a certain amount of volatility with corrections often ending up being deeper than otherwise warrented, something that was on clear display last Thursday - after this reporting week - when the price after reaching a one-year high suddenly dropped close to 100 dollars. Silver also saw a sizable amount of buying lifting the net long by 48% to a four-week high at 26k lots. In platinum, the net long received a 157% boost while palladium, despite rallying by more than 5% saw no interest in adding length with the net remaining neutral. A quiet week in copper meanwhile driving a 9% reduction in the net long to 33.4k lots.
Agriculture: The grains sector saw broad buying interest with the net long in across the six futures contracts rising 65k lots to a ten-month high at 717k. Buying was concentrated in corn, and not least wheat where the 8.5% price jump only helped trigger a halving of the net short to 18k lots, hence the panic buying last Thursday when the price in Paris reached a record high while Chicago wheat reached levels not seen since 2008. The soybean long meanwhile reached a 14-month high at 180k lots, still some 58k lots below the October 2020 high. All four soft commodity contracts saw witnessed long liquidation led by cocoa while the sugar long continued to deflate dropping 8% to 53.8k lots, lowest since since June 2020. Coffee and cotton both seeing a relative small 4% reduction.
Before surging higher last Thursday, following Russia’s attack on a sovereign nation, speculators had cut bets on a rising dollar to a six-month low. After six weeks of non-stop selling the dollar long against ten IMM currency futures and the Dollar index dropped to $8.5 billion last Tuesday with the main driver being a 25% increase in the euro long to 59.3k lots or $8.4 billion equivalent. Additional short covering in JPY and AUD also helped more than offset selling of CHF, GBP, CAD and NZD.
Among the minor currencies the Russian Ruble long rose 21% to 19.5k lots or $0.6 bn equivalent, a 14-week high, just days before starting a collapse which so far has seen drop by close to 30%. Length was also added to BRL which reached a five-year high at 24.4k lots and MXN which at 16.8k lots reached a 14-month high.
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
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