Oil Traders Cut Longs
The latest CFTC COT institutional positioning report shows that crude traders reduced their net long positions by a further 0.5k contracts last week. This latest reduction takes the total position to 475,490 contracts; a seven-month low for upside exposure. This latest reduction in crude upside bets sits somewhat at odds with recent price action, given the ongoing upside seen in the market. However, with the US Dollar seeing better demand over recent sessions and risk assets pausing near highs, the reduction is likely a function of profit taking amidst the current pause in directional moves.
Crude Breaks Out
Crude oil prices broke out to fresh multi-year highs this week spurred by an uptick in demand expectations amidst the ongoing reopening underway around the globe. Additionally, a big driver of the rally this week was news of a potential breakthrough in securing a new nuclear deal between the US and Iran. Such a deal would see the end of economic sanctions on Iran which would be good news for the oil market.
Global Demand Picking
Globally, demand for oil is on the rise. The reopening underway, as well expectations of further reopening, is helping lift appetite for the fuel. Notably, the lifting of lockdown restrictions in the US, UK and parts of Europe is translating into higher demand for petrol and diesel. In the UK this week, the latest data shows that petrol sales are now back at pre-pandemic levels. In the US, the summer driving season looks set to deliver record fuel consumption. Meanwhile, the expected return of tourism in Europe this summer is seeing renewed demand from the aviation sector which has obviously seen a dramatic lack of demand over the last year.
EIA Reports Further Drawdown
The EIA had good news for oil bulls this week also. The Energy Information Administration reported a further fall in US crude oil inventories, which decline by 5.1 million barrels over the week. This was beyond the 2.4 million barrel decline forecast and reflects an uptick in demand ahead of the holiday weekend in the US, but also extends the recent trend of better oil consumption in the US.
Technical Views
Crude
The rally in crude prices this week has seen the market extending beyond the former 2021 highs, running as high as a test of the 69.53 level where sellers stepped in. The bearish divergence in both the MACD and RSI indicators suggests the need for caution here. However, while price holds above the 65.52 level, the focus remains on further upside.
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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.
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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.