Oil Traders Increase Longs

The latest CFTC COT institutional positioning report showed that oil traders increased their net long positions by around 8% last week. This latest increase in upside exposure is well reflected in the price action with crude having broken out to its highest levels since 2014 this week at highs of almost $87 per barrel. At this level, crude prices are now already 16% higher on the year and up almost 40% in the last three months.

Omicron Fears Fading, Driving Demand Up

The main driver behind the rally we’re seeing in oil is the surge in demand linked to the passing of omicron fears. With global governments uniting behind the view that omicron is likely the final stage of the pandemic, markets are looking ahead to the expected pickup in global trade and global travel across this year.

Demand from the aviation sector in particular is returning as governments begin to dismantle travel restrictions, raising hopes of a much fuller European tourist season this summer. With travel likely to continuing picking up as the omicron outbreak fades, the near-term outlook remains favourable for oil.

Ukraine/Russia Tensions On Watch

On a slightly less optimistic note, oil prices also appear to be deriving support this week from worrying reports around the Ukrainian/Russian border tensions. With the US warning that a Russian invasion of Ukraine might be imminent, and with the UK sending weapons and personnel to Ukraine, there are fears of a global spill-over in hostilities if such an event occurs. If tensions do escalate, this is likely to drive oil prices even higher near term.

Further EIA Drawdown Forecasted

Looking ahead this week, traders will be waiting to receive the latest update from the Energy Information Administration later today. The EIA release is a day later than usual due to the MLK holiday in the US. Forecasts are looking for US crude stores to have fallen by a further 2 million barrels over the last week, which should again keep oil prices supported near term if confirmed.

Technical Views

Crude Oil

With price having broken out above the 83.75 level this week, the focus is on further upside while this level holds a support. Price is now trading firmly back inside the bull channel, putting the focus on a test of the 90.85 level and channel top next, supported by bullish MACD and RSI readings. However, it is worth noting the bearish divergence we are seeing on momentum indicators on this last push which suggests reversal risks. To the downside, 78.49 and the channel low is the key support region to note.