Oil Traders Cut Longs

The latest CFTC COT institutional positioning report shows that oil traders cut their net long positions again last week with the total upside position now sitting around one year lows. The sell off comes amidst the ongoing uptick in the US Dollar and renewed fears around COVID as a result of the identification of a new variant, Omicron.

OPEC In Focus

Oil prices are now sitting down by more than 20% from the highs printed in October. Given the sell off, there is a high level of speculation around how OPEC will react. Recently, in response to the US continuing to release oil from the government’s SPR, OPEC had warned that it might look to cut back on production levels in a bid to boost oil prices. Given the heavy sell off over the last week as Omicron fears have taken hold, the market is now expecting such an announcement from the meetings which are taking place later today.

Omicron Impact

Along with the decision on oil production levels, the market will also be keen to hear the group’s latest outlook in light of the new variant. Oil prices came under immediate and heavy selling pressure as news of the variant first broken, echoing the early days of the pandemic last year. While the broader market response appears to have calmed down for now, as we await further details on the severity of the strain, oil prices remain under pressure. At the very least, the immediate disruption to travel (fresh airline restrictions announced globally and the expectation of lower demand over the holiday season from the aviation sector, means that oil is likely to remain pressured near term.

EIA Reports Crude Inventories Draw

There was some good news for crude bulls this week, however. The EIA reported that US commercial crude inventories were lower by almost a million barrels last week, following the unexpected surplus of the prior week. However, the decline was a little less than forecast and was accompanied by news that both gasoline and distillate stockpiles were higher over the week, reflecting a drop in demand.

Technical Views

Crude Oil

The reversal lower from the failure at 83.75 level has seen the market breaking down through several key levels as well as the bull channel low. Price is currently sitting on the 65.52 level support. However, with both MACD and RSI firmly bearish here, the focus is on a continuation lower towards the 60.55 level next.