Oil Traders Increase Longs

The latest CFTC COT institutional positioning report shows that WTI traders increased their upside exposure last week by almost 10,000 contracts, taking the total position back up to 514,258 contracts. This latest increased comes on the back of a few weeks of long covering in the oil market and reflects the better sentiment seen among crude traders in response to improving risk appetite and the ongoing pickup in demand.

Market Optimism Supporting Oil

Increasing optimism among traders linked to the global COVID vaccination effort is creating a broad base of support for risk assets. With the US and UK striding ahead with their targets and with countries in Europe starting to build momentum and Asian economies such as Japan starting their vaccination push, traders are continuing to bet on a return to normal over the second half of 2021. In terms of support for oil, this has a few notable implications; the first is the projected return of widespread global travel. The airline sector has been hard hit over the course of the pandemic and given the huge amount of oil demand derived from that sector, the return of better demand over 2021 should provide a strong upward catalyst for oil prices. Secondly, the easing of social restrictions and lockdowns means that vehicle journeys will start to increase again, especially across the summer driving season in the US which was heavily disrupted last year.

OPEC On Hold

Oil prices have also been helped higher recently by the OPEC+ decision to maintain current supply restrictions. With the group citing the residual uncertainty in its outlook as a result of the pandemic, it opted to keep current cuts in place for now, alleviating fears that the group might ease out of cuts in response to rising oil prices. The group’s de-facto leader, Saudi Arabia, has also undertaken a voluntary 1million barrel per day reduction to further advance its effectiveness.

Further EIA Drawdown Expected

The EIA is due to report its weekly oil inventories update today. The release is day late following the closure of the US federal government on Monday. The EIA has reported six consecutive weeks of drawdowns, reflecting the ongoing build in oil demand. This week, the market is expecting a further draw of -2.1 million, on the back of the prior week’s -6.6 million draw.

Technical Views

WTI

The rally in crude oil has seen price breaking above some key levels with the long term bearish trend line now sitting below market. Price has blown above the 60.21 level and is now testing the 61.60 level. With momentum studies supporting, bulls have the run here with 63.43 the next target to note. Any correction should find support into 58.48 if it gets that far.

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