COT: Crude long slumps; agriculture sector in demand

COT: Crude long slumps; agriculture sector in demand

Ole Hansen

Head of Commodity Strategy

Summary:  This summary highlights futures positions and changes made by hedge funds across commodities, forex and bonds in the week to last Tuesday, 7 November. A week that included the market reaction to the November 1 FOMC meeting when Fed Chair Powell sent a strong hint to the market that the Federal reserve is done hiking rates. While that message was modified last week, the initial bullish reaction in the week to November 7 helped drive a sharp reduction in bond yields and the dollar while stocks surged, and volatility tumbled.


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.


Commodity weekly: Crude oil risks overshooting the downside
Video: Crude tumble drives worst week since March
Global Market Quick Take: Europe – 14 November, 2023

 

  

This summary highlights futures positions and changes made by hedge funds across commodities, forex and bonds in the week to last Tuesday, November 7. A week that included the market reaction to the November 1 FOMC meeting when Fed Chair Powell sent a strong hint to the market that the Federal reserve is done hiking rates. While that message was modified last week in order to prevent markets from running ahead of themselves, the initial bullish reaction in the week to November 7 helped drive a sharp reduction in bond yields and the dollar while stocks surged, and volatility tumbled. Commodities meanwhile headed for their worst week since March on a combination of growth concerns hitting the energy sector and profit taking weighing on metals while the agriculture sector traded firmer. 

Commodity sector

The commodity sector failed to respond to the general risk-on seen across other markets with the Bloomberg Commodity index trading lower by 1.5% on the week, led by significant losses across the energy sector and profit taking in precious and platinum group metals. Overall, these developments saw leveraged funds, such as hedge funds and CTA’s cut their overall exposure for a second week. The hardest hit were crude oil and natural gas followed by corn, cotton, silver and platinum. In demand were copper, soybeans, sugar and hogs. 


Special note on crude oil: Hedge fund selling of crude oil extended to a third week with the combined net long in WTI and Brent slumping to a four-month low at 312k contracts, down 44% since September when the focus on tight markets led by Saudi production cuts peaked before demand worries began taking over. In WTI, the 179k lots slump to 136k lots since September 26 has been driven by 74k lots of fresh short positions and 105k lots of long liquidation. In Brent, the global benchmark, the changes have been less dramatic with a 68k lots reduction in the net long to 176k being driven by a small 6k lots increase in shorts and 62k lots of long liquidation. Given the accelerated price collapsed following November 7, it is fair to speculate positions have been reduced even further, potentially creating the foundation for another bounce, especially after WTI and Brent found support below $75 and $80 respectively

Energy: Heavy crude oil selling impacting the two diesel contracts. Another false breakout in natural gas triggering a 41% reduction in the net long
Metals: Profit taking seen in gold following a near record three-week buying spree, silver remains out of favor with the net long cut 66% to near neutral while platinum flipped back to a net short as the price tumbled 5%. Copper short nearly cut in half
Grains: heavy buying of soybeans and soymeal has been justified by latest supportive price develoments. Corn sold for a second week while the wheat short continues to swing around -95k
In softs, demand for sugar, cocoa and coffee continued amid ongoing price rallies while the cotton long slumped again, this time by 65% to 8.7k lots.
Forex: The gross dollar long versus eight IMM forex futures rose 3% to $11.5 bn with selling of CHF and CAD being partly offset by demand for EUR, GBP and AUD
Fixed income: Leveraged funds added to an already record short in 2’s and 5’s while trimming positions in 10’s and T-bonds. Overall the DV01 (value of 1 bp move) was cut by $9 million to -$421 million, with the corresponding long position being held by asset managers and other reportables

Quarterly Outlook

01 /

  • Equity outlook: The high cost of global fragmentation for US portfolios

    Quarterly Outlook

    Equity outlook: The high cost of global fragmentation for US portfolios

    Charu Chanana

    Chief Investment Strategist

  • Commodity Outlook: Commodities rally despite global uncertainty

    Quarterly Outlook

    Commodity Outlook: Commodities rally despite global uncertainty

    Ole Hansen

    Head of Commodity Strategy

  • Upending the global order at blinding speed

    Quarterly Outlook

    Upending the global order at blinding speed

    John J. Hardy

    Global Head of Macro Strategy

    We are witnessing a once-in-a-lifetime shredding of the global order. As the new order takes shape, ...
  • Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Quarterly Outlook

    Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Jacob Falkencrone

    Global Head of Investment Strategy

  • Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    Quarterly Outlook

    Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    John J. Hardy

    Global Head of Macro Strategy

  • Equity Outlook: The ride just got rougher

    Quarterly Outlook

    Equity Outlook: The ride just got rougher

    Charu Chanana

    Chief Investment Strategist

  • China Outlook: The choice between retaliation or de-escalation

    Quarterly Outlook

    China Outlook: The choice between retaliation or de-escalation

    Charu Chanana

    Chief Investment Strategist

  • Commodity Outlook: A bumpy road ahead calls for diversification

    Quarterly Outlook

    Commodity Outlook: A bumpy road ahead calls for diversification

    Ole Hansen

    Head of Commodity Strategy

  • FX outlook: Tariffs drive USD strength, until...?

    Quarterly Outlook

    FX outlook: Tariffs drive USD strength, until...?

    John J. Hardy

    Global Head of Macro Strategy

  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

Content disclaimer

None of the information provided on this website constitutes an offer, solicitation, or endorsement to buy or sell any financial instrument, nor is it financial, investment, or trading advice. Saxo Bank A/S and its entities within the Saxo Bank Group provide execution-only services, with all trades and investments based on self-directed decisions. Analysis, research, and educational content is for informational purposes only and should not be considered advice nor a recommendation.

Saxo’s content may reflect the personal views of the author, which are subject to change without notice. Mentions of specific financial products are for illustrative purposes only and may serve to clarify financial literacy topics. Content classified as investment research is marketing material and does not meet legal requirements for independent research.

Before making any investment decisions, you should assess your own financial situation, needs, and objectives, and consider seeking independent professional advice. Saxo does not guarantee the accuracy or completeness of any information provided and assumes no liability for any errors, omissions, losses, or damages resulting from the use of this information.

Please refer to our full disclaimer and notification on non-independent investment research for more details.
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-mena/legal/disclaimer/saxo-disclaimer)


Business Hills Park – Building 4,
4th Floor, office 401, Dubai Hills Estate, P.O. Box 33641, Dubai, UAE

Contact Saxo

Select region

UAE
UAE

All trading and investing comes with risk, including but not limited to the potential to lose your entire invested amount.

Information on our international website (as selected from the globe drop-down) can be accessed worldwide and relates to Saxo Bank A/S as the parent company of the Saxo Bank Group. Any mention of the Saxo Bank Group refers to the overall organisation, including subsidiaries and branches under Saxo Bank A/S. Client agreements are made with the relevant Saxo entity based on your country of residence and are governed by the applicable laws of that entity's jurisdiction.

Apple and the Apple logo are trademarks of Apple Inc., registered in the US and other countries. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.