Oil Traders Scale Back Longs
Thelatest CFTC COT institutional positioning report shows that oil traders reducedtheir net long positions by almost 20k contracts last week. Taking total upsidebets from 299.5k down to 280k contracts, this was the sharpest pairing ofupside exposure we have seen in months and well reflects the growing concernover the demand outlook for oil.
Recessionary Fears
Crudeprices have been under steady pressure recently as mounting global recessionconcerns have begun to weigh on demand projection into year end. With inflationstill soaring globally, as evidence yesterday by 40-year highs in US June CPI, andcentral banks pressing ahead with aggressive tightening, growth forecasts arebeing sharply reduced across the board. Just this week we saw the IMF downgradingits global growth forecasts for the year ahead as a result of the conditions mentioned.
Weaker Demand Outlook
A slower pace of global economic activity isexpected to translate into weaker demand for fuel products. Additionally, thereturn of lockdowns in China this week, as well as fears of further lockdownsto come, is also weighing on demand expectations for oil. While oil prices havebeen well supported by the rebound in demand from the aviation sector thisyear, there is growing speculation around the risk of travel restrictionsreturning post summer in response to surging COVID cases in Europe, againcontributing to weaker demand expectations.
Higher US Dollar
The freshupside in the US Dollar this week is also weighing on oil prices. With US CPIcoming in well above forecasts for June, any likelihood of the Fed easing up onrate hikes after this month has been heavily reduced. With the Dollar likely tocontinue higher near term, oil prices are vulnerable to further downside in theshort-term. This is especially true given that over this month and next OPEChas stepped up its production output from around 400k extra barrels a month to roughly650k extra barrels per month. The additional supply coming at a time of reduceddemand expectations is further surpassing oil prices currently.
EIA Surplus
Thelatest report from the EIA this week added further pressure to oil prices. TheEIA reported an almost 4-million-barrel inventory surplus last week, in starkcontrast to forecasts for a 1.5 million barrel drawdown. Potentially a sign ofthe growing supply/demand imbalance, the data has created further headwinds foroil into the end of the week.
TechnicalViews
Crude oil
Thebreakdown in oil prices below the rising trend line from YTD lows has seen themarket advancing steadily lower. Price has blown through several key supportlevels and is currently sitting on support at the 95.93 level. With both MACDand RSI bearish here, the focus is on a further break lower and a test of the83.75 level next.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.