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COT: Speculators cut exposure in pro-cyclical commodities

Changes in speculative positions held by funds across 24 commodity futures during the week to December 3

Saxo Bank publishes two weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial.

Hedge funds were aggressive sellers of pro-cyclical and trade war impacted commodities during the week to December 3. This after Trump blurted a trade deal could be delayed until after the November US Presidential election. Hardest hit were crude oil, natural gas, copper and soybeans while gold, corn, sugar and wheat were bought. Overall the combined net long across the 24 major commodity futures tracked in this dropped by 153k lots to 555k lots.

Heavy selling hit the energy sector as crude oil gyrated in a wide range ahead of Friday’s OPEC+ meeting. A meeting which controlled by the Saudis ended up being a major exercise in trying to support crude oil and with that a $2 trillion Aramco valuation. This after the Saudis on top of an agreed group reduction of 500k b/d surprised the market with an additional voluntary cut of 400k b/d. While providing a floor under the market further upside now hinges on whether Iraq and others will implement the necessary cuts to comply with their new quotas.

The combined net-long in WTI and Brent was cut by 66k lots after funds added 103k lots the previous week.

Natural gas, down another 4% this Monday, has been left ill prepared for any extreme cold snap over the coming weeks. Following the worst November price action in 18 years the net-short across four Henry Hub deliverable contracts reached a seasonal record high last Tuesday of 214k lots.

Gold was bought as the market challenged resistance at $1480/oz. A level that subsequently failed to hold as the market continued to pump and dump on trade and economic data news. The net long rose by 10% to 227k, some 22% below the October record.

Long liquidation cut the silver long by 8% while copper short selling extended to a fourth consecutive week. This before breaking and closing above its 200-day moving average on Friday following the strong US job report.

During the past five weeks funds have reversed their soybeans position from a 72k lots long to a 99k lots short. This is in response to a 10% price drop during this time as demand worries lingered. Especially from China which will soon have alternative sources of supply as the South American harvest moves closer.

Surging coffee prices saw the net-long extend to a three year high at 14k lots. Tightening fundamentals have cut in half the contango which for the past few years helped make coffee one of the most attractive hedge fund short positions to hold.

What is the Commitments of Traders report?

The Commitments of Traders (COT) report is issued by the US Commodity Futures Trading Commission (CFTC) every Friday at 15:30 EST with data from the week ending the previous Tuesday. The report breaks down the open interest across major futures markets from bonds, stock index, currencies and commodities. The ICE Futures Europe Exchange issues a similar report, also on Fridays, covering Brent crude oil and gas oil.

In commodities, the open interest is broken into the following categories: Producer/Merchant/Processor/User; Swap Dealers; Managed Money and other.

In financials the categories are Dealer/Intermediary; Asset Manager/Institutional; Managed Money and other.

Our focus is primarily on the behaviour of Managed Money traders such as commodity trading advisors (CTA), commodity pool operators (CPO), and unregistered funds.

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.

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
– Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
– Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)
– Full disclaimer (https://www.home.saxo/en-mena/legal/disclaimer/saxo-disclaimer)

Ole Hansen
Head of Commodity Strategy
Saxo Bank
Topics: Commodities COT Commodities Crude Oil Natural Gas Gold Silver Copper Platinum Corn Sugar Coffee Gasoline Palladium Wheat Cocoa Cotton Hogs Cattle Energy (Sector) Futures

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