WTI Under Pressure

The CFTC COT positioning report showed that net length in US WTI positions rose by 12,415 contracts to 567,272 contracts in the week ending January 7th. The rise in WTI upside exposure came amidst a backdrop of heightened tensions between the US and Iran which many feared would boil over into a full conflict.

Since that data, however, the US-Iranian situation has largely calmed down. In the absence of a US response to Iranian retaliation for the killing of general Soleimani, the threat of further violence has receded. During periods of heightened alert in the Middle East, crude oil prices usually move higher as the market anticipates disruption to supply. However, with further violence having been avoided for now, supply lines look safe and expectations of supply disruptions have receded, seeing WTI prices falling lower.

Latest OPEC Demand Projections

WTI prices have come under further selling pressure this week as the latest update from OPEC pointed to reduced demand expectations. In its first 2020 outlook, OPEC said that demand for its crude specifically is likely to fall over the year, even as global demand looks set to increase. It attributed this dynamic to the ongoing rise in US crude production.

OPEC noted that the dramatic increase in US crude production over recent years, fuelled by the boom in shale oil production, means that total US output is likely to exceed 20 million bpd for the first time this year which will almost meet current US demand of 21.34 million bpd. OPEC has now reduced its 2020 demand outlook by 100k barrels per day to 29.5 million barrels per day. This is roughly 1.2 million bpd lower than the 2019 figure as a whole.

OPEC notes that global WTI demand is projected to rise by 0.18 million bpd – 2.35 million bpd over 2020, this is up from the 1.86 million bpd forecast made at the end of 2019. It cites better conditions in India and China as the main driver behind the increase. In light of this, the ongoing US-Sino trade negotiations (now aimed at agreeing a phase-two deal) will be watched closely by oil trades.

Bullish EIA Report

The EIA reported a return to decrease in US WTI stock last week. Following a build over the prior week which put an end to the 4 week run of drawdowns, US WTI levels were lower by 2.5 million barrels last week, reflecting better demand and lower WTI import levels.

Technical View

From a technical viewpoint. WTI prices have continued to decline, with price moving back below the monthly pivot at $59.63. Price is now challenging a cluster of support at the yearly pivot and monthly S1, with VWAP in the area also. With VWAP still positive, bulls will need to see a quick rebound from here back above the monthly pivot to negate a move down to complete the larger symmetry objective at $52.

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