COT: Funds rush into commodities ahead of yearend

Ole Hansen

Head of Commodity Strategy

Summary:  The COT report covering the week to December 24 saw hedge funds keep up their buying interest across all three major commodity sectors. Driven by the US-China trade deal and OPEC+ agreement to cut oil production further. Multi-month highs were seen in platinum, bean oil, coffee, sugar and cotton while the natural gas short reached a fresh record.

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 continued their broad based commodity buying ahead of year end. This in response to improved growth and demand prospect following the US-China phase one trade deal. In addition the OPEC+ deal on December 6 to cut production further helped boost the energy sector. During the past three weeks speculators have accumulated WTI and Brent crude oil longs at the fastest pace since August 2017. 

One of the few exceptions to the current buying spree is natural gas which saw the net-short across four Henry Hub deliverable contracts reach a fresh record short of 246k lots. 

At the other end of the scale we found net longs reaching multi-months high in platinum (40 months), bean oil (38 months), coffee (37 months) and cotton (12 months).

Whether we are seeing a shift from macro based funds from short hedges against an economic downturn to long hedges against the prospect for higher inflation remains to be seen. The month of January will prove crucial in order to determine whether these bullish expectations can be maintained or whether the early parts of 2020 will deliver a reality check should data or news fail to support. 

Crude oil buying slowed as short sellers began to emerge after WTI broke above $60/b and Brent crude above $65/b. The combined gross long jumped 28k lots while 16.4k lots of shorts were added leaving the net long at 682k lots, the highest since April 30 last year. As mentioned the three week accumulation of fresh longs occured at the fastest pace since August 2017.

We maintain the view that the short-term fundamental outlook is not yet strong enough to support a continued rally from here. However, the events in Iraq during the past week where Iran-backed Iraqi forces advanced on the U.S. embassy in Baghdad and the deteriorating outlook in Libya both highlights elevated geopolitical risks as 2020 begins.


Funds increased silver longs by 49% to 55k lots after the white metal broke out of the range that had prevailed since early November. Gold was also bought with the net long rising 11% to 243k lots, the highest since October 8. This in response to a weaker dollar and rising inflation expectations. 

Speculators cut bearish bets on soybeans by 58% to 33k lots, a five week low. The US-China phase one trade deal triggering a rush to reduce short positions while only a small amount of fresh longs were added. The other two major crops saw corn shorts and wheat longs both being reduced. 

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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