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COT: Speculators rush into crude oil futures; Dollar short cut to near neutral COT: Speculators rush into crude oil futures; Dollar short cut to near neutral COT: Speculators rush into crude oil futures; Dollar short cut to near neutral

COT: Speculators rush into crude oil futures; Dollar short cut to near neutral

Commodities
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, September 12. A week that saw the short end of the US yield curve firm up amid rising energy prices and robustness in US data pointing to higher for longer rates, while the dollar paused following a week-long ascent. The commodity sector saw a sharp divide between surging energy prices led by fuel products and renewed weakness across metals 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 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.

Global Market Quick Take Europe

  
 

This summary highlights futures positions and changes made by hedge funds across commodities, forex and bonds in the week to last Tuesday, September 12. A week that saw some emerging stock market weakness led the US tech sector. Elsewhere the short end of the US yield curve firmed up amid rising energy prices and robustness in US data pointing to higher for longer rates, while the dollar paused following a week-long ascent. The commodity sector saw a sharp divide between surging energy prices led by fuel products and renewed weakness across metals and grains.

Commodity sector:

The Bloomberg Commodity index traded higher for a third week, but the small increase was unevenly split with a 2.5% rally in the energy sector and firmer livestock prices being offset by losses in metals, both precious and industrial as well as grains. A tightening fuel product market amid lower output of crude oil from Saudi Arabia and Russia, as well as the higher for longer US rates, were the two main themes driving activity, together with data pointing to a US crop being less impacted by drought than original feared.

Hedge funds and CTA’s responded to these developments by aggressively adding to their long positions in WTI and Brent crude oil for a second week, while all the major metals saw net selling.

The week to September 12 saw broad selling, led by metals and grains, being partly offset by another strong week of crude oil buying. Biggest reductions in gold, silver, platinum, copper, corn and gasoil while buying was concentrated in crude oil and gasoline
Crude oil and fuel products: During a two-week period to September 12, the combined leveraged fund long in Brent and WTI has jumped by 137k contract or 35% in response to the Saudi and Russian yearend production extension. The combined net long reached an 18-month high at 527k contract last week with buying being led by WTI (+30k to 279k) as inventories at Cushing, the delivery hub, continues to shrink amid the current tightness. The WTI long versus short ratio has spiked to 14.6 longs per short, from a June low at 1.5. Gasoil’s strong rally was met by increased short selling while length was added to the RBOB and ULSD contracts.
Gold, silver and copper: Continued weakness across precious metals amid the fallout from higher energy prices, dollar strength and rising yields helped trigger a 25% reduction in the gold long to 50k, a return to neutral in silver at 1.2k, and a reversal back to a net short in platinum. All developments leaving these metals in a better position to rally on price friendly news as seen Friday when the dollar rally stalled. The copper net flipped back to a net short of 3.8k contracts.
In grains, net selling across all six grain and soy contracts increased the combined net short to 55k contracts, a three-month high. Despite some emerging profit taking, the long exposure remained concentrated in the three soy contracts while the corn net short jumped 44% to a three-year high at 135k, and additional short positions were added to the CBT and KCB wheat contracts.
Softs & Livestock: A relatively quiet week across the softs sector saw speculators continued to increase their longs in sugar and cocoa while the coffee short saw a small reduction
In forex, speculators cut their gross dollar short vs eight IMM futures by 81% to near neutral at $1.2 billion, the lowest conviction in a lower dollar since last December All currencies except the AUD were sold, led by EUR which saw its net long slump to a ten-month low at 113k contracts ($15.1 bn equivalent).
In fixed income, leveraged funds bought 5's and 10's while extending the 30-yr & 30-yr Ultra short to near fresh record at 1.1 million contract, representing DV01 value of $190 million per basis point. Overall the DV01 value of their entire short position across the whole yield curve reached $420 million per basis point yield move.

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