Upside Positioning Increases

The latest CFTC COT institutional positioning report showed that WTI traders increased their long positions last week by a further 455 contracts, taking the total position to 514,713 contracts. This latest increase, being at a much smaller size than recent increases, reflects a loss of demand for upside exposure. Despite the weakening bullish momentum in positioning, oil prices have continued higher this week with the market advancing to three years on improved investor sentiment.

Risk Appetite Supporting Oil Demand

The oil market continued to be buoyed by the general improvement in investor appetite currently being fuelled by ongoing global vaccination effort and expectations of forthcoming US fiscal stimulus. With most developed economies now vaccinating their domestic populations, investors are looking ahead to the beginning of the end of the pandemic and a return to normal across the summer. This is lifting risk appetite and is helping boost demand for oil as traders eye the return of demand from the aviation sector as well as the typical increase in demand seen from the summer driving season in the US.

Traders Betting on Return of Aviation Demand

The global aviation sector has suffered a dramatic loss of demand over the course of the pandemic to date. With national lockdowns in place around the world and many countries subject to travel restrictions, airlines have suffered greatly, causing a heavy downward move in demand from the sector which typically is the second largest source of demand for oil. With traders looking ahead to a recovery over 2021, a pickup in oil demand from aviation is expected to provide plenty of upside support for oil prices.

EIA Reports First Inventories Build in 2 Months

The EIA’s latest weekly update painted a different story from prior week’s with US crude stores seen growing by over 1 million barrels last week. On the back of several weeks of consecutive gains in oil stores, the news has done little to disrupt the rally, though traders will be looking to see if the increase was sustained this week.

Technical Views

WTI

Crude prices have broken above several key levels on the key recent rally. The latest rally off the 58.48 level support has seen price breaking above the 61.60 level with the market now challenging the 63.43 level. While price holds above the 58.48 level, the bias is geared towards further upside towards the 65.71 level next. To the downside, a break below the 58.48 level will open the way for a retest of the broken bearish trend line, ahead of deeper support at the 54.82 level.