Oil Traders Cut Longs Further
The latest CFTC COT institutional positioning report shows that oil traders reduced their net long positions last week by a further 7,370 contracts. This latest reduction takes the total upside position back down to just 349,158 contracts, the lowest level of upside exposure since before the pandemic began. The net-long position in crude has been steadily unwound over recent months as traders react to ongoing developments within the COVID backdrop. The rising concerns around the Delta variant (particularly as the West heads into autumn/winter) is fuelling fears of fresh lockdowns and travel restrictions, weighing on the demand outlook for oil.
Prices Rise On Hurricane Disruption
Despite the steady reduction in upside bets, oil prices have been trading firmly over the last month with crude recovering off the August lows around mid $61s to current highs around $73. The recent period of extreme weather in the US (Hurricane Ida) caused huge supply outages, with some of the market still offline currently. This disruption had a strong upward impact on prices and effectively mitigated the increased supply coming online this month as a result of the recent increase in OPEC output.
OPEC Raises 2022 Demand Outlook
Oil prices have also benefited from a recent upward revision in OPEC’s demand outlook for the year ahead. The oil producing cartel upgraded its global demand forecast for 2022 by 900k barrels to 4.2 million barrels per day. Commenting on demand in the third quarter, OPEC noted that demand had been resilient as a result of increased mobility. However, looking ahead the group did note some downside risks heading into the final quarter stemming from pandemic uncertainty.
EIA Reports Further Drawdown
The Energy Information Administration had good news for crude bulls this week also. The EIA reported a 6.4 million barrel drawdown in commercial stocks last week, far surpassing the modest estimates for a 1.3 million barrel decrease. Gasoline and distillate inventories were both lower on the week also, falling by 1.9 million barrels and 1.7 million barrels respectively.
The ongoing rally in crude prices has seen the market breaking above the bear channel top and the 69.53 level. With both the MACD and RSI bullish the focus is on further upside in the near term. However, the market is fast approaching a key area of technical resistance at the 74.46 level where we also have the retest of the broken bullish trend line.