Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
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COT: OPEC throws remaining oil short sellers under the bus
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, March 28. A week that saw markets stabilize and risk appetite return following a couple of weeks crisis in the aftermath of the SVB collapse and problems at Credit Suisse. Together with broad dollar weakness and softer bond yields, the commodity sector saw broad gains with the Bloomberg Commodity index rising 1.6%.
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
Global Market Quick Take Europe
Saxo Market Call Daily Podcast
This summary highlights futures positions and changes made by hedge funds across commodities and forex during the week to last Tuesday, March 28. A week that saw markets stabilize and risk appetite return following a couple of weeks crisis in the aftermath of the SVB collapse and problems at Credit Suisse. Together with broad dollar weakness and softer bond yields, the commodity sector saw broad gains with the Bloomberg Commodity index rising 1.6%.
Industrial and precious metals, as well as crude oil and grains led the gains, resulting in a 22% increase in the net long position held by hedge funds across the universe we track in this update. The bulk of the buying was driven by short-covering in crude oil, corn and wheat together with fresh longs being added to gasoline, natural gas, gold, copper, corn and cocoa.
Energy
Ahead of Sunday’s surprise production cut announcement from OPEC+ the speculative gross short, especially in WTI had already been sharply reduced as the price spent most of the week recovering from the 10-dollar mid-month collapse. The net long increased by 42k lots with 46.7k lots of short covering offsetting 4.7k lots of long liquidation, the latter highlighting a market that was not looking for any further short-term gains.
Apart from supporting prices amid worries about an economic slowdown hurting demand, the surprise production cut also helped throw short sellers under bus. The Saudi energy minister is known for his opposition against short sellers as the Kingdom attempt to control their most prized asset. “We will never leave this market unattended,” he said back in 2020. “I want the guys in the trading floors to be as jumpy as possible. I’m going to make sure whoever gambles on this market will be ouching like hell.”
Metals:
In metals the gold long reached an 11-month high at 130k contracts with speculative demand continuing to receive a boost from the prospect of lower yields and the weaker dollar. Silver’s 4.4% rally helped boost the net long to 10.8k contracts, however, with the gross long near a ten-year low at just 32k contracts, plenty of additional upside exist as seen through continued buying last week while gold paused below $2000. The HG copper position meanwhile flipped to a 13k contract net long with traders gearing up for a potential breakout of the downtrend that has prevailed since late January.
Agriculture:
Ahead of Friday’s Stocks and Prospective Planting reports, funds had cut their corn net short by 68% to 13k lots, a wise move considering the continued recovery driven by increased export demand. All three soy contracts meanwhile saw net selling ahead of the market rallying to a one-month high after the USDA cut soybean acreage and rising oil prices supported via the link to biofuels. Buying of Kansas wheat, recently supported by a deteriorating production outlook, returned back to neutral while small selling of CBOT wheat confirmed its role as the most shorted of all the commodities we trac in this update.
Buying of soft commodities were concentrated in sugar and not least cocoa where which saw the net long jump 150% to reach a three-year high. Coffee meanwhile saw small net selling and cotton small net buying.
Forex
In forex it was a relative quiet week where the dollar suffered setbacks against all the major currency futures tracked in this update. This following a period of strong liquidation of both long and short position seen in the previous week. The only flows of interest were buying of JPY, AUD and CHF and sale of GBP. Overall the net dollar short against nine IMM forex futures and the Dollar Index rose by 40% to $5.3 billion.
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