The Crude Chronicles

WTI Traders Reduce Longs Again

The latest CFTC COT institutional positioning report shows that WTI traders reduced their net long positions in crude last week by a further 9,784 contracts, taking the total position to 49,0915 contracts. Long positions have been steadily reduced over recent weeks, reflecting a growing shift in sentiment in the crude market which has been reflected in the recent bearish price action we’ve seen.

Saudi Arabia Cuts Oil Prices

WTI prices have shed over 17% in recent weeks, falling from summer highs around the $43.75 region to trade current lows of $36. WTI has come under fresh selling pressure this week as a result of news over the weekend that Saudi Arabia, the largest OPEC producer, has decided to reduce crude prices for its October shipments to the US and Asia. This marks the first reduction in price from Saudi Arabia since earlier in the year when the country entered a price war with Russia and this latest reduction brings the country’s crude prices back below its target benchmark.

Chinese Shipments Weakening

The move comes in response to reports that Chinese shipments have begun weakening following months of stockpiling in the world’s second largest economy. This has been another key theme which has created downward pressure on oil prices recently with reports reflecting that Chinese refiners have been purchasing much lower amounts of crude following the Q2 economic collapse. The situation has been so severe that oil tankers arriving at Chinese ports have been made to wait, in some cases, for weeks at a time before being able to offload their cargo.

EIA Release Due Today

The latest Energy Information Administration report is due later today. The release was delayed this week as a result of the labour day holiday in the US. Last week, the EIA reported a large 9.4 million barrel decline in headline US crude inventory levels and this week, the market is looking for a -3.1 million barrel result. However, given the current sell off underway in crude prices, it isn’t clear that such a reading will be able to stem the declines and should there be any undershooting of this forecast, selling could actually intensify.

Technical Views

WTI (Bearish below $41.35)

From a technical viewpoint. The reversal risks, highlighted by the bearish divergence we have seen in momentum studies over recent weeks, have materialised now with price breaking below the bullish channel and the $41.35 level and 50dma. While below here, the outlook remains bearish with the $34.3 region the next key support to note.

The Crude Chronicles - Episode 55

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