COT Report Data for Crude Oil Futures

Crude oil prices have been in a downtrend since shortly after the big peak caused by Russia's invasion of Ukraine.  Those prices are near a turning point now, according to data from the CFTC's weekly Commitment of Traders (COT) Report.

This week's chart shows the net position of the big "commercial" category of traders.  To qualify as a commercial a trader must be either a producer of the subject commodity, or "use it in their trade or business".  This chart depicts the raw net short position of this group, meaning the total number of their short positions minus their long positions.  They have been net short as a group for a really long time, and so the game consists of evaluating each week's data relative to how they have been positioned in the recent past.

When prices go up, these traders go short more.  And when prices get to what they think is a "low" level, they lighten up on their shorts a lot.  Much of this is done by oil producers who use sales in the futures market to lock in pricing on their future production.  If prices are high, they want to lock in those prices, and so their shorts go up.  At low prices, they would rather not lock in pricing, hoping that they can do better as time goes by.  So a low net short position for these commercial traders is a statement that oil prices are really low.

Crude oil prices do not absolutely have to respond to that statement right away, or at all, but these low net short position readings do tend to matter in the long run.  This current one is extra low, as the next chart helps to illustrate.

This one looks at the same data going back all the way to 2009, which was the last time that these traders actually went to a small net long position.  That marked a great bottom for crude oil prices.  This chart portrays the net short position as a percentage of total open interest, to help normalize it over the long run.  For shorter time periods, the difference in the raw number of contracts works just fine.

This longer term chart helps us to see just what a rare condition we are seeing in the crude oil COT data.  The commercial traders have not had this small of a net short position since 2010, which would have been a great time to be a buyer of crude oil prices.  That's not a guarantee that it has to work the same way now, just a message to help us see what this current reading means.

The downtrend in oil prices has helped to dampen the inflation caused by Congress still running deficits, and the Fed still inflating the money supply.  And the Fed is responding to that dampening inflationary pressure by easing up on their high short term interest rates a little bit.  If the commercial oil futures traders are correct about oil prices being "cheap" right now, then we could well see a rise in oil prices start putting more pressure on inflation, and the Fed backing away from the multiple future rate cuts that many analysts are forecasting.