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COT: Commodities experience week of widespread selling, with Diesel, Copper, and Corn among hardest hit
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, April 25. A mixed week across markets that saw stock market weakness ahead of strong earnings from big tech, a weaker dollar driving ans a fresh slump in Treasury bond yields as investors sought the safety of US government debt as well as broad weakness across commodities led by industrial metals, energy and grains.
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 reasons why we focus primarily on the behavior of the highlighted groups 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
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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, April 25. A mixed week across markets with stock market weakness seen ahead of strong earnings from big tech, a tad stronger dollar and a fresh slump in Treasury bond yields as investors sought the safety of US government debt amid a fresh collapse in First Republic Bank stock.
Commodity sector:
The Bloomberg Commodity Index slumped 3.8% during the reporting week to April 25 with losses seen across all sectors led by industrial metals (-6.2%), grains (-6%) and energy (-4.4%). The broad price weakness drove a 21% reduction in the managed money net long to 1.05 million lots representing a notional value of $91 billion. Selling was concentrated in energy (-103k lots) and grains (-149k lots) with copper and cotton also seeing sizable net selling.
Crude oil and diesel: The April 2 OPEC+ production cut continued to reverberate across the crude oil market. Last week through the negative impact of short sellers chasing the gaps and longs that was bought after April 3 being reduced. The combined net long in WTI and Brent crude oil was cut by 54.3k lots to 400k, a four-week low, with reduction being driven by 32.5k lots of long liquidation and 21.8k lots of fresh shorts.
A major driver of the recent crude oil market weakness has been a slump in refinery margins across the major refinery hubs in Asia, the US as well as Europe. Especially the diesel market saw accelerated selling during the reporting week, resulting in the ICE gasoil net flipping to a small net short for only the third time in seven years. Stateside meanwhile, the net long in the ULSD contract (Ultra-Light Sulphur Diesel), previously known as heating oil, was cut by 44% to a 27-month low.
Gold, silver, and platinum: Selling of gold extended to a third week, albeit at an even slower pace than the previous two. During the correction phase, the net long has been cut by 11.8k lots to 133k lots, a small counter reaction to the 126k lots that was bought in the previous four weeks. The platinum net long jumped one-third to 24.4k lots, a thirteen-month high, in response to the recent outperformance versus gold while the silver buyers increased their net long by 16% to 25k, highest since January 17 but still a muted response considering the recent strong rally.
HG Copper: The copper weakness below $4 a pound triggered 30k lots of selling, the most in a single week since August 2019, and it flipped the net to a 10.5k lot short. The VWAP (Volume-weighted Average Price) in the period between April 20 and 25 when selling accelerated was $3.95 a pound, and it highlights a level above which we could see some short seller pain emerge.
Grains: The Bloomberg Commodity Grain index reached a nine-month low last week with broad weakness sending all the major grain and soybeans contracts lower. Speculators responded to the continued weakness by cutting their net long to just 33k lots, the lowest since August 2020, and down from 819,000 last April when the Russian invasion of Ukraine triggered supply worries. Selling of 64.7k lots of corn flipped the net position to a net short while continued selling of CBOT wheat lifted the net short to a 113k lots, a fresh five-year high.
Softs: The recent strong buying of soft commodities, led by sugar, Arabica coffee and cocoa slowed to trickle while cotton traders following four weeks of net buying responded to a 7.3% price drop by increasing the net short by 176% to 20.3k lots.
Forex
In forex, speculators were net sellers of the dollar for a fifth consecutive week, resulting in the gross short versus nine IMM futures and the Dollar Index rising to $11.4 billion, an 11-week high. The most notable flow involving selling of the greenback continued to be led by the euro which saw an increase to 169k lots or $23 billion equivalent, the highest in 30 months. In addition to GBP, which reached a 17-month high, short covering in CHF, CAD and AUD also played their part. Most notable exception was selling of JPY as speculators, correctly as it turned out, positioned themselves for a dovish Bank of Japan meeting, the first being led its new chief Kazuo Ueda.
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