COT: Speculators look beyond tank tops to accelerate oil buying

Ole Hansen

Head of Commodity Strategy

Summary:  Hedge funds reacted to the risk on sentiment in the week to April 28 by adding length to energy and metals while continuing to sell agriculture commodities. The April slump in crude oil continued to attract speculative buying with the risk of storage running out being offset by the focus on falling production and the expected pick up in demand. Bullish WTI bets reached a 16-week high and natural gas a one-year high. Gold demand was tepid despite rising prices while short-covering in copper continued.


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.

The below summary highlights futures positions and changes made by hedge funds across 24 major commodity futures up until last Tuesday, April 28. The risk on seen during this period was driven by hopes, perhaps in some cases premature, that the COVID-19 pandemic had started to loosen its stranglehold on the global economy. The S&P 500 jumped by 5% while the dollar and bonds traded softer.

Hedge funds were net buyers of energy and metals while they continued to sell agriculture commodities during the week to April 28. The prospect of production cuts and lock-downs starting to ease spurred speculative demand for crude oil and natural gas while copper short-covering continued. Gold and silver only attracted a small amount of buying despite rallying by 2% during the week. Baring a few exceptions such as soybeans, cotton and cattle, broad based selling across the agriculture sector continued.

Energy: The collapse to negative prices the previous week strengthened speculative demand for WTI futures. This in the belief that the current price weakness would support a rapid reduction in US production while attempts to ease lock-downs would spur a pickup in fuel demand. The WTI net-long jumped by 74k lots or 35% to 283k lots, a 16-week high. The recovery in Brent crude oil net-longs have been much more slow and primarily due to short-covering. During the past four weeks funds cut short positions by 72.5k lots while only adding 14k lots of fresh longs. Overall the combined long in WTI and Brent rose by 83k lots to 426k, a three-month high.

Natural gas continued to be bought with the combined net long in four Henry Hub deliverable futures and swap contracts reaching a one-year high. Natural gas futures capped its best month in April since November 2018 with associated production from oil wells expected to shrink as drillers make deep cuts to production.

Metals: For a sixth week the gold net-long remained stuck in a 180k to 200k lots range. It highlights the current lack of clear direction with gold struggling to break away from $1700/oz. Silver meanwhile remains troubled by its recent bouts of volatility and for a fifth consecutive week funds made only small adjustments to maintain a long exposure some 80% below the February peak. Funds cut net bearish HG copper bets to 14-week low as the price rallied by 4% to test key resistance just below $2.40/lb

Agriculture: An overall negative week in terms of price action across the key crops of corn, wheat and soybeans had no impact on the fund net which remained close to its five-year average.  In softs, both sugar and cocoa rallied strongly into the weekend after funds began scaling back short positions in response to an improved outlook. Sugar rallied on the back of a recovery in oil potentially renewing demand for sugar-based ethanol while cocoa rose to challenge technical resistance at $2400/MT.

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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