Article / 25 September 2017 at 7:59 GMT

COT: Funds chasing oil and products higher — #SaxoStrats

Head of Commodity Strategy / Saxo Bank
  • Demand higher in agriculture, lower in metals during week up to September 18
  • Tension between US and North Korea softened sell off in gold
  • WTI/Brent gap widened to highest since August 2015, which attracts hedge funds
Like other metals, gold was under pressure last week, but ongoing geopolitical 
 uncertainty supported it. Photo: Shutterstock
By Ole Hansen

Hedge funds increased their bullish bets across 26 major commodities futures by 8% in the week to September 18. The total net-long reached a 6-month high at 1.74 million lots, not least due to a continued surge in demand for crude oil and products. 

Broad-based interest was seen across the agriculture sector while the metal sector was net-sold for the first time in ten weeks as profit taking hit both gold and copper.

Combined commodity positioning

This week’s report now also include Brent crude oil and gas oil positioning after the ICE Exchange Europe adopted the same release schedule as the CFTC.

Speculative positioning in Commodities
An overhang of US crude oil compared with falling stocks of Brent saw the gap between the two widen above $6/b last week to the highest since August 2015. The diverging fundamentals have been supported by Opec and Russia's efforts to curb supply. They are now being rewarded as the rising backwardation and spread to WTI help give them a competitive advantage over US shale oil producers. This as the price of WTI remains stuck close to $50/b with forward hedging/selling activity making it difficult for prompt WTI to rally at this stage. 

Diverging crude oil fundamentals
Hedge funds have increasingly been buying into the rising backwardation in Brent crude as they seek to benefit from the rising roll yield. Last week was no exception with the net-long in Brent rising to 465 million barrels, the highest since March and just 56 million barrels below the February record. The WTI net-long jumped the most since December on a combination of short-covering and new longs being added. The gap between the two however continues to highlight how Brent remains the preferred oil futures of the two. 

COT: Crude oil data
Hurricane Harvey's disruptions to refinery activity along the Texan Gulf coast continued to be visible in the fund behavior towards fuel and product futures. During the past four weeks the net-long position in RBOB gasoline, ULSD diesel and gas oil has surged by 60% to a record 294,000 lots. Refinery margins weakened last week but as long stocks continue to decline these long bets are likely to remain supported.
COT: Fuel and product futures
The metal sector suffered its first setback in ten weeks with precious, platinum group and industrial metals all being sold. The net-long in gold was cut by 8% but remained elevated into the post-FOMC selloff through key support at $1300/oz. Geopolitical risks associated with the escalating war of words between “Rocket man” and the “Barking dog” continues to soften what otherwise could have been an accelerated selloff.
Speculative positioning in COMEX Gold futures
The net-long in HG copper was cut for a second week as it struggled to regain its $3 handle. This in response to softening China data and continued yuan weakness and emerging market jitters ahead of the October 16 Congress of the Chinese Communist Party. It has so far retraced 38.2% of its May to September rally but given the continued focus on reducing exposure the risk of further long-liquidation remains. 

Speculative positioning in COMEX HG Copper
 Key crops
Speculative positioning in grains and beans
Speculative positioning in soft commodities

— Edited by Clemens Bomsdorf

Ole Hansen is head of commodity strategy at Saxo Bank
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Commitments of Traders: Managed money position in commodities


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