COT: Oil and gold longs cut; Agriculture in demand
Head of Commodity Strategy
Summary: The COT report covering the week to January 14 showed the hedge funds reaction to Middle East deescalation with crude oil and gold longs being cut. The imminent signing of the U.S. - China trade deal meanwhile helped drive demand for industrial metals and agriculture commodities.
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 Commitments of Traders report covering the week to January 14 found speculators cutting longs in crude oil and safe haven metals as Middle East tensions faded. Natural gas continued to get sold while agriculture commodities got bought ahead of the signing of the U.S. - China trade deal.
Crude oil longs were left exposed following the pump and subsequent dump as Middle East tensions faded and after some longs established following the December 6 OPEC+ meeting became loss making. The selling was concentrated in WTI which saw the net-long being cut by -22% as domestic stocks rose. Brent crude oil, the global benchmark, was despite the 5.5% price slump, surprisingly left unchanged at 426k lots. Overall and due to the drop in WTI longs the combined position dropped to 652k lots, a five-week low.
The already record short in natural gas expanded further by 7% to 267k lots as winter demand stayed muted and the price drifted lower towards $2/therm. Today (Monday) the price rout continued as the price initially slumped by 9% in early trading to reach $1.83/therm, another seasonal record low, before clawing back half those losses. The lack of frigid cold weather this winter have seen producers being unable to shake off a supply glut amid rising production. With the winter soon giving way to spring the market is already beginning to worry about the prospect for storage facilities hitting max during the summer injection season.
Speculators reduced bullish gold bets by 4% to 262k lots in response to the correction that followed the temporary early January surge above $1600/oz. The silver net-long was kept unchanged at 58k lots.
Chinese New Year celebration start this Friday and will keep Chinese markets more or less shut until January 30. The lack of activity in China may lead to relative quiet markets during that time
Bullish platinum bets hit a new record at 51k lots as the metal benefited from the continued surge in palladium. HG copper longs meanwhile jumped in response to Chinese data and ahead of the signing of the US-China trade deal.
The agriculture sector was also in demand ahead of the signing of the trade deal with 11 out of 13 commodities tracked in this being bought. The net-long across the sector jumped by 88k lots to 327k lots, an 18 month high. Biggest change was the 64k lots or five-fold increase in the sugar net-long to a 14 month high while cotton and KBT Wheat longs both reached 13 month highs
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.
Latest Market Insights
Outrageous Predictions 2023: The War Economy
- The constantly growing global need for energy drives the world's richest to huddle up and launch a R&D project in a size the world hasn't seen since the Manhattan Project gave the US the first atomic bomb.
French President Macron resignsThe political stalemate in France and the rise of Marie Le Pen following the 2022 elections corners President Macron, forcing him to give up on politics and resign from his position. At least for now.
Gold rockets to USD 3,000 as central banks fail on inflation mandateAs markets and central banks realise that the idea that inflation is transitory is wrong, and that prices will remain higher for longer, gold is sent through the roof, hitting a price tag of USD 3,000
EU Army forces EU down path to full unionWith continued challenges in the region and a US military that isn't aggressively enacting its former role as global policeman, the European Union agrees to create its own armed forces, bringing the whole region closer.
A country agrees to ban all meat production by 2030In an effort to become one of the global leaders on the path to net-zero emissions, one country decides to not only put a heavy tax on meat, but to ban domestic production entirely.
UK holds UnBrexit referendumFollowing a recession and domestic pressure, the United Kingdom is thrown into political turmoil that will end with a vote to wind back Brexit.
Widespread price controls are introduced to cap official inflationHistory tells us that with the war economy comes rationing and price controls. And this time is no different, as policymakers introduce strict price controls that lead to a range of unintended consequences.
OPEC+ & Chindia walk out of the IMF, agree to trade with new reserve assetSanctions against Russia have caused widespread turmoil due to US Dollar moves in countries across the globe that don't consider the US an ally. To relieve themselves from this, they leave the IMF and create a new reserve asset.
USDJPY fixed to the USD at 200 as Japan overhauls financial systemFollowing the challenges that faced the Japanese Yen in 2022, the Bank of Japan attempts to keep the currency from sliding. Unsuccessful on the long-term, Japan will launch a reset of its entire financial system.
Tax haven ban kills private equityWith the war economy comes an increased focus on national interests and sovereign nations' ability to assert themselves. In that regard, the OECD countries turn their attention on tax havens and pull the big guns out, banning them altogether.