The final day of the week finds forex markets in risk-off mode with both the Japanese yen and the US dollar firmer but others, including the euro, commodity dollars and emerging markets currencies trending weaker. Among commodities themselves, geopolitical risk and benign inflation are sapping demand.
Article / 27 December 2017 at 12:17 GMT

COT: Funds cutting bullish bets ahead of year-end

Head of Commodity Strategy / Saxo Bank
  • Huge crude oil long reduced in week ending Dec. 19
  • Gold was bought following US rate hike
  • Supply disruptions caused spike in copper longs

 Supply disruptions helped copper to a 2½ year high. Photo: Shutterstock

By Ole Hansen

Hedge funds continued to sell agricultural commodities ahead of year-end. According to the latest Commitments of Traders report covering the week to December 19 funds were net-sellers of ten out of 13 agriculture commodity futures tracked in this. 

The near-record crude oil long was reduced while gold was bought in the aftermath of the long-awaited US rate hike. The copper long jumped 61% on supply disruptions, both in South America and not least in China.

Speculative positioning in Commodities

Hedge funds look set to finish the year holding a near-record long in crude oil. This in response to the Opec+ group successful attempt to curb production. Multiple (temporary) supply disruptions during the past couple of months have all helped provide additional support. The most recent coming from pipeline disruptions. Just as flows through the Fortis pipeline in Scotland, an important conduit of Brent crude oil, restarted following a two-week pause due to repairs, an explosion at an important pipeline in Libya helped provide additional support. 

Speculative positioning in WTI Crude oil
Since finding support at an important technical level on December 5 HG Copper has rallied by more than 10% and yesterday it reached a 2½ year high at $3.30/lb. Just like oil, the rally has been driven by supply disruptions on the back of mining strikes in South America and the Chinese government's efforts to curb winter pollution through the forced closure of smelters. The recent spike was driven by news that Jiangxi Copper Co, China's largest producer, had been ordered to stop production for at least one week. 

Having cut bullish copper bets from the September record, funds turned strong buyers in the week to December 19 with the net-long jumping 61%. 
Speculative positioning in COMEX Copper

The fifth US rate hike in this cycle triggered a repeat pattern for gold as it dropped in the weeks leading up, only to recover once the uncertainty was removed. The price recovery post the December 13 rate hike helped trigger a 6% increase in bullish bets, primarily driven by short positions being scaled back. 

The combination a leaner position and not least the continued rally since December 19 has set the metal up for an interesting start to 2018. A year where the need for tail end protection amid record stock levels and geopolitical uncertainties are likely to keep an underlying bid below the market. 

Silver could potentially offer an even better opportunity given the improved performance among other industrial metals and not least the fact that funds hold a record short following five weeks of aggressive selling.
Speculative positioning in COMEX Gold and Silver

The grain sector looks set to finish the year with funds holding a record short position. A net-short position is currently being held in the three major crops of corn, wheat and now also soybeans. 

Speculative positioning in grains and beans

Soft commodities with the exception of cotton have all witnessed end of year selling. Not least coffee where the net-short hit a fresh record last week but also sugar which during the past two weeks has moved from a net-long of 10,000 lots to a net-short of 100,000 lots.

Speculative positioning in soft commodities

– Edited by Clare MacCarthy


Ole Hansen is head of commodity strategy at Saxo Bank

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Commitments of Traders: Hedge funds positioning in commodities

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