The Crude Chronicles – Episode 53

The Crude Chronicles – Episode 53

COT Shows Oil Longs Trimmed Again

The Crude Chronicles – Episode 53 – The CFTC COT positioning report shows that oil traders trimmed their net long positions once again last week. Upside positions were cut by 10,240 contracts, taking the total position to 510695. Crude longs have been reduced steadily over recent weeks despite price action continuing to drift higher.

The broader fundamental backdrop remains supportive for now. Risk assets continue to trade at or near recent highs, propelled by ongoing weakness in the US dollar as well as diluted concerns over the prospect of a second wave of the virus.

With infection numbers and the death toll in the US having fallen back over the last week, the market is hopeful that the sharper risks have passed, with lockdown fears receding also. Despite this however, there are some headwinds and downside risks for oil on the horizon. A growing number of European countries are adding their neighbours to flight quarantine lists causing a reduction in demand for air travel, which was only just starting to pick back up.

The loss of demand from the aviation sector over the height of the pandemic was perhaps the biggest contributor to downside price action in crude oil. With many countries having begun to tentatively reopen air travel, crude prices have been able to recover firmly over the last two months.

The ending of nationwide lockdown measures around the globe has also caused a broader pickup in demand and activity with motorists and manufacturers seeing a recovery in demand, despite still sitting well off pre-virus levels.

EIA Confirms 5th Consecutive Weekly Drawdown

The EIA this week reported a further drawdown in US commercial oil inventories last week, which fell by a further 4.7 million barrels. The decline was more than the 4.3 million barrel drawdown forecast and also marks the fifth consecutive week of reductions in US crude stores, adding further encouragement over the pace of the recovery taking place there.

With OPEC+ having recently reaffirmed its commitment to maintaining the current oil production restrictions, despite expectations that the group might begin to ease out of them this month, the near term picture remains favourable for oil prices.

Technical Views

WTI (Bullish above $41.35)

From a technical viewpoint. WTI prices continue drift higher within the local bullish channel which has firmed the move higher since June. Price has moved back above the $41.35 level now and while this holds as support, bulls will target a move up to $50.32 next. However, bearish divergence in momentum studies is worth noting and should price reverse below $41.35 and the channel low, a deeper correction could develop.

The Crude Chronicles - Episode 53

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