Article / 20 March 2017 at 8:07 GMT

COT: Funds exiting commodities at record pace — #SaxoStrats

Head of Commodity Strategy / Saxo Bank

m Funds running for the commodities exit door. Photo: Shutterstock

By Ole Hansen

Rising US oil inventories and market jitters ahead of the Federal Open Market Committee meeting were just two of the drivers behind the biggest fund exodus out of commodities on record. Hedge funds sold a total of 370,000 lots of futures and options across the 24 commodities tracked in this. 

We have for some time been worried that the gap between positioning and the actual performance of key commodities did not stack up. The Bloomberg Commodity index, which represents a basket of commodities in energy, metals and grains have traded sideways for the past 11 months while bullish bets increased at a rapid pace, not least in crude oil.

Speculative positioning and BCOM

Hedge funds cut bullish commodity bets by 23% or 370,000 lots. Longs were cut by a total of 204,000 lots while 166,000 lots of new shorts were added. All the three major sectors saw selling with a few exceptions such as natural gas and livestock. 

Speculative positioning in Commodities

WTI Crude oil: The 86,784 lot reduction in bullish oil bets was the biggest weekly reduction on record and it was triggered by the aggressive slump in the week leading up to March 14. Rising US inventories and production combined with doubts about the effectiveness of Opec and non-Opec producers cutting efforts helped trigger what was a long overdue reaction from funds who had been buying into to a stale market for weeks. 

The gross-short doubled and it could signal a new shorting cycle has begun. Crude oil is therefore not out of the woods yet despite the recent slump and fragile recovery towards the end of last week. On a positive note it can be said that the long-short ratio has now been cut to 4 after hitting 11.5 just three weeks ago.

Speculative positioning in WTI Crude oil
Producers and merchant added to the selling pressure in oil with the gross-short held by this category rising by 29 million barrels to 740 million. The weekly rig count continues to rise and that will translate into ever higher production, hence the need to continue to hedge production at profitable levels. 
Producer hedging
Gold: Worries about a potential hawkish rate hike hurt sentiment ahead last week’s FOMC meeting. This triggered a second week of gold selling which saw the net-long reduced by 47%, the lowest since January 3 and by the most since 2015. 

The gross-long dropped to a 13-month low and this has opened up for a renewed bullish bias as the weaker dollar and geopolitical risk offset the potential for US rates rising further.
Speculative positioning in COMEX Gold futures

Both precious and platinum group metals saw heavy selling. In platinum the net-long halved and hit a 10-week low.

Speculative positioning in metals
The grain sector was hit hard with all three major crops seeing heavy selling, not least corn which resulted in a return to a net-short position.

Speculative positioning in grains
— Edited by Martin O'Rourke

Ole Hansen is Saxo Bank's head of commodities strategy
Logich Logich
Ole S. Hansen, what is your thought on Coffee fundamentally short to midterm, please? - It´s been highlighted technical in Macro Monday Call this morning as a buy, but would like to know if this, in your opinion is supported from a fundamental view.


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