Oil Traders Cut Longs

The latest CFTC COT institutional positioning report shows that WTI traders cut their long positions last week by 3972 contracts, taking the total position to 504612 contracts. This marks a two month low for longs and likely reflects the impact of recent market volatility which saw risk assets taking a hit.

EIA Reports Further Drawdown

Despite the covering of long positions last week, oil prices have broken out to fresh one year highs this week as a combination of better risk appetite and demand continuing to firm up. The EIA recorded yet another drawdown in commercial crude stores last week with inventories falling by 1 million barrels. EIA crude stores have now been in drawdown for five straight weeks, their longest run of drawdowns in the last year.

OPEC Holds Cuts In Place

The OPEC+ meeting this week was also a big market mover. The meeting between OPEC and non-OPEC producer nations, led by Russia, saw the group agreeing to keep current production cuts in place given the residual uncertainty and risks around the pandemic. With oil prices rising there had been some speculation that production cuts might start to be wound down. However, the group agreed to keep production at current levels with Saudi Arabia agreeing to cut production by 1 million barrels per day, this month and next.

Vaccine Optimism Helping

The COVID backdrop is also broadly supporting the oil outlook. With the US and UK both making steady progress with vaccination efforts and with Europe and other regions starting to see better momentum, hopes of a return to normal this year are starting to gain traction, improving the demand outlook for oil , especially across H2, which should keep prices trading higher in the near term.

Technical Views

WTI

Crude has this week broken out of the corrective bear flag pattern which formed over the prior fortnight and is now testing the bearish trend line While price holds above the 54.82 level, the near term bias is for a continued push higher towards the 58.48. However, bearish divergence in momentum studies is worth monitoring and any slip below the 54.82 will put the 50.32 level back in play.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 65% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.