Article / 29 August 2016 at 8:00 GMT

COT: Oil bears exiting at the fastest pace on record

Head of Commodity Strategy / Saxo Bank
  • Energy demand sparks rise in hedge funds' commodity exposure
  • Soybeans, oil, sugar, gold all see demand spikes
  • Opec production freeze talks still driving oil markets

Crude oil
Hedge funds have dramatically increased their crude oil 
holdings following last week's retracement. Photo: iStock 

By Ole Hansen

The surging demand for energy futures helped trigger a 27% increase in hedge funds' total commodity exposure during the week ending August 23. Other commodities in demand were soybean oil, sugar, cocoa, and gold.

In just two weeks, hedge funds have increased bullish bets on WTI crude oil by a record 142,000 lots (142 million barrels). But with 87% of the increase being driven by short-covering, some concerns may now resurface that the net-long, now just 5,000 lots below April's peak may not be supported by current fundamentals.

Speculative positioning in Commodities

Crazy moves in oil positions this summer

The net-long in WTI crude oil has almost tripled during the past three weeks as renewed production freeze talks helped trigger a massive reduction in the gross-short. In the week to August 9, it hit a record of 220,000 lots (red line) but has since then collapsed while buyers have been adding gross length (blue line) for the past seven weeks.

The volatility is clearly driven by the short positioning in response to Opec members' talk about freezing production. A deal however remains unlikely at this stage given especially Iran's stance on its right to bring production back to pre-sanction levels. This combined with a stronger dollar following Janet Yellen's speech at Jackson Hole on Friday has left the prices of both WTI and Brent crude oil vulnerable. 
Speculative positioning in WTI Crude oil

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Funds increased their net-long in gold by 4% ahead of the aforementioned speech on Friday. Given the subsequent market reaction, which sent the dollar and bond yields higher, the yellow metal has been left vulnerable to additional long liquidation. 

In the short-term, where the risk of profit-taking has risen, the area of support between $1,313/oz and $1,300/oz remains the key to gold in the short term. 

Speculative positioning in COMEX Gold futures

Sugar hits new record long

Sugar hit a new record long despite seeing the price rangebound since June. Failure to extend the rally above 21 cents/lb could leave the sweetener exposed to long liquidation despite supportive fundamentals.

On copper...

Weakening fundamentals triggered the return of a copper net-short position. Rising production and inventories combined with lower Chinese imports have so far been offset by the positive impact of strong rallies seen across other industrial metals. 

As we mentioned in this recent update, a break below 2 cents/lb could trigger an extension of the price weakness. With funds having only just turned net-short again, there will be plenty of room to increase short positions should such a break occur. 

— Edited by Michael McKenna

Ole Hansen is head of commodity strategy at Saxo Bank

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Commitments of Traders: Commodities

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Ole Hansen Ole Hansen
The ICE exchange has just published COT data for Brent crude oil. Last week hedge funds raised bullish bets by 31,563 lots or by 9%. Taking a look at the combined data of WTI and Brent the net-long jumped 24% to 627k lots with the gross-long hitting a new record of 803k lots.


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