Oil Traders Cut Longs
The latest CFTC COT institutional positioning report shows that oil traders reduced their net long positions last week by almost 18k contracts, taking the total position back down to 323,703 contracts. This latest round of selling came ahead of the OPEC+ meeting which took place last week. Despite fears that OPEC might look to step up its oil production in a bid to counter surging prices, the oil cartel once again decided to hold steady, maintaining its current pace of production increases. Indeed, the group’s decision comes despite growing calls from around the globe for the producer-pack to step up production and help quell the ongoing energy crisis.
OPEC Refuses To Increase Production
Following an almost 30% run up from September lows to recent highs, oil prices have lost upside momentum in recent weeks with price currently being held back by the 83.75 level resistance. Despite the calls, led by the US administration, for OPEC to increase production, the group has reaffirmed its commitment to following a steady path of production increases. The oil minister of the UAE warned this week that without OPEC, oil prices would be more than double what they currently are, resisting calls from the US to increase production.
US Releases Strategic Oil Reserves
With OPEC so far refusing to compromise, the US administration is reportedly considering releasing more supply from its strategic oil reserves, in a bid to help clam domestic prices there. The latest report from the Energy Information Administration shows that the US released 3.1 million barrels last week, the largest such release since 2017.
EIA Reports Gasoline & Distillates Drawdowns
The EIA also reported that US crude stocks were higher by more than 1 million barrels last week though, as a result of the SPR release, this as less than the 1.6 million barrel surplus forecast. Gasoline stocks were lower over the week, however, falling by 1.6 million barrels. This latest decline in inventories marks a fifth consecutive week of drawdowns, taking the overall stock down to levels not seen since 2017. Distillate stockpiles (diesel, heating oil) were also lower by almost 3 million barrels over the week.
The current price action in crude suggests risks of a correction lower in the near term. The break below the local rising trend line and subsequent rebound and retest of the 83.75 level has been accompanied by strong bearish divergence on momentum studies. We’ve also seen a large bearish engulfing candle form over Wednesday, suggesting scope for a decline. To the downside, 76.78 – 74.46 is the key support region to watch. While above there, the focus remains bullish.