Crude oil Crude oil Crude oil

COT: Crude length cut to near pandemic low

Ole Hansen

Head of Commodity Strategy

Summary:  Our weekly Commitment of Traders update highlights future positions and changes made by hedge funds and other speculators across commodities and forex during the week to Tuesday, June 27. A week that overall saw small losses in stocks, an unchanged dollar and rising bond yields after a flurry of economic data showed surprise strength across the US economy, raising the prospect for higher Fed funds rates while further delaying any likelihood of recession. Speculators, responded to these latest developments by cutting exposure across 15 of the 24 major futures contracts tracked in this update, with the heaviest selling seen in crude oil, gold, platinum and most soft commodities

Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities while in forex we use the broader measure called non-commercial.

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.

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This summary highlights futures positions and changes made by hedge funds across commodities and forex during the week to last Tuesday, June 27. A week that overall saw small losses in stocks, an unchanged dollar and rising bond yields after a flurry of economic data showed surprise strength across the US economy, raising the prospect for higher Fed funds rates while further delaying any likelihood of recession. The commodity sector meanwhile took a hit with all the major sectors seeing lower prices amid ongoing demand concerns, not least from China, the world’s top consumer of raw materials. 

Commodity sector:

In the week to June 27, the Bloomberg Commodity Index dropped 2.3%, thereby reversing a similar gain during the previous reporting week. Losses were broad and led by agricultural commodities from sugar to corn and coffee, with energy, precious and industrial metals also seeing weaker price action. 

Speculators, responding to these latest developments by cutting exposure across 15 of the 24 major futures contracts tracked in this. Selling was heaviest in crude oil with gold, platinum and most soft commodities also seeing net selling. Despite trading lower on the week, the grains sector continued to see net buying as speculators scrambled to rebuild positions in response to early June strength, a focus that saw them fail respond to emerging price weakness as the attention turn from drought to the prospect for beneficial rains across key US growing areas. 

Crude oil and fuel products: The +4% drop in crude oil triggered a 66k contract reduction in the WTI and Brent combined long to 231k contracts, just 48k above the March 2020 low that followed the panicky Covid price slump. Last week 2/3 of the change was driven by fresh short selling, especially in WTI where the net long slumped to near a 13-year low at just 71.5k. If we widen the focus from ‘Managed Money’ to include ‘Other Reportables’, the total net long in the five major oil and fuel contracts dropped to near the May 16 low at 376k contracts, reflecting the lowest belief in higher energy prices since 2011. Products were mixed with gasoline in demand while diesel (ULSD) saw net selling.
Gold, silver and copper: Gold weakness below $1930 on hawkish Fed cues helped drive a 9% reduction in the net long to a 15-week low while silver length held steady for a sixth consecutive week as interest in the white metal remained low. In PGM’s the palladium short reached a fresh record high (since 2010) while the platinum long crumbled 80% to 2.3k contracts. Weakness across industrial metals on fresh China growth woes saw HG copper HG copper drop back below its 200-day moving average resulting in funds cutting recently established longs by 11%.
Grains: A very volatile month across the sector culminated on Friday with a massive price divergence between corn and soybeans following the USDA planted acreage shock report. Wrong-footed funds spent most of June chasing the market with a drought-driven rally forcing them to flip position from a net short to a net long, just as rains triggered profit taking ahead of Friday’s acreage report.
Softs: A week of heavy selling saw the Bloomberg Commodity Softs index slump by 8% and it forced funds to reduce exposure across recent favorites, such as sugar and coffee. The Arabica coffee net returned to neutral, the sugar long was cut by 22% to 177k contracts, a two-month low, while the cotton short jumped 186%.
In forex, another week of net dollar selling saw the gross dollar short vs eight IMM futures and the Dollar index rise 35% to $11.8 billion, a six-week high. Except continued selling of JPY other currencies saw net buying led by a cut in the CAD net short to a nine-month low and near neutral. The GBP long meanwhile reached a fresh 16-year high at 52k contracts.

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