Crude Continues Higher

The crude market has drawn plenty of attention this week as the ongoing rally saw prices breaking out to fresh three year highs. Traders have been increasing their net long positions in crude over recent weeks, as reflected in the COT report which has shown the net long position moving back up to multi-month highs.

Oil prices have been rising steadily as a result of the ongoing energy crisis which is fuelling speculation that there will be a shift away from natural gas back towards oil as a result of rampant natural gas prices. With the energy market in flux, the near term outlook for oil remains geared towards higher prices.

OPEC Holds Steady

The surge in demand has not yet prompted OPEC to raise its oil output, with the group remaining committed to its slow and steady increase in production. Given this dynamic, oil prices look set to remain on an upward trajectory in the near term. One possible headwind to higher prices might be if the Fed tapers, and USD appreciates meaningfully in the near term. However, given that the Fed is still caught between subdued employment and rampant inflation, the impact of tapering might not fuel as much USD upside as previously forecast.

EIA In Focus

Looking ahead today, the focus will be on the latest EIA release which is due following a one day delay. The market is forecasting a 1.1 million barrel surplus. Yesterday, the API reported a more than 5 million barrel increase in crude stockpiles, which echoes recent releases as US producers step up output in a bid to meet surging demand and capitalise on higher prices.

US Output to Slow Next Year

In its Winter Fuels outlook, released yesterday, the EIA reported that it expects US output to drop next year, which might also be acting as an upward driver in the near term. As yet, there are no clear indications as to when the current energy crisis might abate and as natural gas prices rise, oil demand is likely to continue, keeping the focus on further upside for now.

Technical Views

Crude Oil

Oil prices prices continue to rise following the recent breakout above the 76.78 level. With price moving well above the bullish trend line and indicators yet to flag divergence, the focus is on a test of the 83.75 level next. To the downside, any correction will put the focus on 74.46 and 69.53 below, with the rising trend line in that area also.