Oil Traders Continue To Cut Longs

The latest CFTC COT institutional positioning report shows that oil traders cut their upside exposure again last week by a further 5438 contracts. This latest reduction takes the total position back down to 504612 contracts, marking a three and a half month low. The scaling back of long positions appears at odds with current price action as the oil market continues to drift higher amidst a better risk backdrop and more optimistic demand forecasts.

Vaccine & Stimulus Optimism Driving Oil Higher

Oil prices have broken out to their highest levels since January 2020 this week as the rally in equities and commodities markets continues to lend support. With the US vaccination drive picking up firm momentum and with the US administration on the brink of delivering the president’s $1.9 trillion stimulus package, traders are displaying a great deal of bullishness this week.

Globally, there are now increased expectations that the vaccination effort underway will help deliver a broad economic recovery over the second half of the year. Crude traders are looking ahead with optimism with the return of wider air travel set to see a sharp uptick in demand for oil. The summer driving season in the US also looks far more likely to deliver in traditional terms this year if the vaccination effort proves successful. In the near term, cold weather across Europe is keeping demand heightened there.

EIA Reports Sixth Consecutive Weekly Drawdown

In the US, the EIA reported a sixth consecutive weekly drawdown in crude stocks last week. US crude inventories fell by almost 7 million barrels, far outstripping the 1-million-barrel drawdown forecast. The steady downward trend in crude levels is good news for oil bulls and will be welcomed by OPEC as prices continue to climb back towards the $60 level.

In its latest Short-Term Energy Outlook for February, the EIA has now upgraded its oil price forecasts. The group now sees WTI averaging $50.21 this year and $51.26 next year, up from the prior forecasts of $49.70 and $49.81 made in January. Despite the upgrades, the EIA noted that there is still a great deal of uncertainty in the outlook linked to the path of the pandemic

Technical Views

WTI

The ongoing rally in crude has seen price breaking above the medium-term bearish trend line, with price now testing the $58.48 resistance level. The level is finding selling interest on first test, however, while price remains above the broken trend line, further appreciation towards the $60.21 level is expected.

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