COT update: Dollar demand surges while crowded longs left crude exposed to correction

Commodities

The latest COT reporting week to 7 April saw the Bloomberg Commodity Index rise 2%, with gains in livestock and, in particular, energy offsetting weakness across precious metals, grains, and softs. Once again, the primary focus was the energy sector, where the BCOM energy index jumped 6.4%, led by WTI and gasoil (diesel).

In response, managed money traders—including hedge funds and CTAs—maintained a total net long near a four-year high, just ahead of the US–Iran ceasefire announcement. This positioning helps explain part of the subsequent 16% price slump, reinforcing the view that the sharp decline was primarily driven by an overcrowded long rather than any meaningful easing in underlying fundamentals, which continue to point to a tightening physical market.

Across benchmarks, positioning developments were mixed but remained elevated overall. In WTI (ICE + CME), the net long increased by 5.5k to 109.2k contracts, while Brent saw a modest 5.6k reduction to 424.3k, leaving the combined total near a four-year high at 533.5k contracts. A long-short ratio in Brent at 11.3, compared with just 2.6 in WTI, underscores that Brent remains the preferred contract for expressing tightness.

While the ceasefire triggered a sharp correction in the paper market, it has yet to materially alter the physical backdrop. Key indicators—such as elevated prompt spreads and the continued premium in Dated Brent relative to futures—highlight ongoing and, in some cases, rising supply constraints. As such, any additional downside from here is likely to reflect further positioning clean-out rather than a deterioration in core market fundamentals.

Elsewhere, the following developments stood out:

• Gold length was cut to 92k contracts, a 25-month low, with bullion last trading near USD 2,000/oz when leveraged participation was similarly subdued. 
• Soybean oil net length reached a fresh record at 150.7k contracts, driven by its biofuel linkage to surging fuel prices.
• Besides soybean oil, the grains sector saw its first week of net selling in 12 weeks, with the combined net long across six major contracts falling from a four-year high to a still-elevated 662k contracts (USD 26 billion notional).
• Cocoa shorts rose to a November 2022 high of 16.4k contracts as prices retreated toward three-year lows near USD 3,250—down around 75% from 2024 highs.
• The cotton short was reduced to near neutral - the smallest in two years - supported by strong price gains, as rising oil prices drive substitution from synthetic fibres such as polyester toward natural fibres.

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.