COT: Money Managers Sold Too Much Oil While Buying Soybean And Corn

| About: The United (USO)

Summary

Judging by the behavior of money managers, a correction in the oil market is probable.

Money managers are neutral on corn. A sideways trend is likely to develop.

The wheat market liquidity continues to grow. The further price reduction on this market will probably not be long.

The relative size of the money managers’ net long position in soybeans approached the two-year maximum. Further purchases are unlikely.

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Oil

According to the COT report for the week ending November 8, the money managers reduced their net long position in WTI oil (NYMEX) by 31.9%. In absolute terms, the money managers' net position decreased by 74,711 contracts - this is a record rate for at least the last two years.

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In general, the money managers' behavior indicates that the market is currently oversold.

Firstly, for the last three weeks, the net position decreased by 1,32,038 contracts in total, i.e. almost twice. Historically, after such aggressive sales from the side of the money managers, there was some correction.

Secondly, the money managers' net position is shrinking for the third week in a row - this is also quite rare, and the chances that sales would continue for the fourth week in a row are slim.

Thirdly, the current net position of the money managers almost matches the one they held at the end of September when OPEC announced the intention to limit the production at the November summit. The summit has not been canceled, and the agreement on limiting oil production may still be signed in one form or another.

In my opinion, it will keep the money managers from further sales and probably even lead to some correction.

Corn

For the last week, the money managers' net short position in corn (CBOT) was reduced by 36,954 contracts, amounting to 28,054 contracts. Thus, before the publication of the USDA November report, the money managers' net position in corn became almost neutral.

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The market liquidity did not change significantly. The share of money managers' net position in corn dropped to 1.6% in the total number of open interests, which is of course a very low indicator.

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Judging from the money managers' behavior, there will be no sharp movements on the corn market in the near future. Perhaps, this indicates preconditions for formation of the side trend on this market.

Wheat

In the last week, money managers were practically inactive on the wheat market. Their net short position on this market increased by 714 contracts amounting to 111,346 lots.

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At the same time, the wheat market liquidity updated its long-term maximum once again. On November 8, the open interest on this market amounted to a record 6,10,807 lots.

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The November USDA report has made no fundamental changes in the structure of supply and demand balance on the wheat market. However, the external negative factor in the form of falling oil prices and the dollar growth brought the wheat futures price down to its minimum a month ago. I believe, if this market continues to decline, money managers will take advantage of this situation and close a part of the sold contracts. Therefore, probably, the regular wheat price minimum will not be long.

Soybeans

The money managers continued to increase their net long position on soy for the sixth week in a row. The net position increased by 13,651 contracts over the specified period.

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The market liquidity did not change significantly. According to last week's results, the open interest on the soybean market totaled 729,804 lots. That is still close to the two-year minimum.

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The money managers' net position in soybean (CBOT) reached 17% of the total number of open interest. This percentage is close to the two-year maximum and points to the small probability of future purchases on the side of money managers.

It is worth noting that the COT report provided the information as of November 8, i.e. before the publication of the November USDA forecast, which, in my opinion, was bearish for the soybean market. Given that the relative size of the money managers' position in soybean is big enough, I think the next COT reports will point to the reduction of the money managers' long position on this market.

Conclusion

So, it is obvious that the money managers sold too much oil and now this market will probably see a correction.

Corn will probably settle into a sideways trend. Wheat looks negative, but money managers still need to close their record number of sold contracts, and, therefore, a possible wave of decline on this market is not going to be long and deep. As for the soybean market, I believe it will soon see the sales on the side of the money managers that would exert pressure on it.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.