Oil Traders Increase Net-Long Positions

The latest CFTC COT institutional positioning report shows that oil traders increased their net long positions last week. Oil prices have been firmly rangebound over recent months as traders continue to struggle to get a grip on directional moves. The main issue is that the market remains deadlocked between opposing forces. On the one hand, concerns over the slowdown in China, fears over global growth as a result of higher inflation and tighter monetary policy, are weighing on the demand outlook for oil, exerting downward pressure. However, concerns over tightness in market supply, the fall-out from the conflict in Ukraine and continued slow production increases from OPEC+ members is underpinning the market.

Price Action Trading in Range

Reflecting this stalemate, crude prices have been trading a roughly 95.93 – 114.71 range since the middle of March. More recently, prices have settled into a roughly 95.93 – 108.74 band. Until there is a clear resolution within one side of these market factors, further range bound action looks likely near-term. In terms of judging the balance of risks, however, there appears to be more supporting the view of an eventual breakout higher.

Upside Risks Ahead for Crude

Looking ahead, the summer driving season is typically a period of high demand for oil. However, given the current cost-of-living crisis and soaring energy prices, it is feasible to expect demand to be a little less this year, though the period should still yield support for oil prices. Additionally, with Europe approaching its first, full summer-tourist season since the pandemic began, demand from the aviation sector is also likely to help keep prices underpinned.

Additionally, the latest health data out of China showed that new COVID infection in Shanghai fell by 51%, with no new cases reported as of Tuesday. This news is fuelling hopes for an imminent end to the near six-week lockdown there which would create a surge in demand for oil and consumers and businesses get back to normal.

EIA Reports Huge Inventories Surplus

The latest report from the Energy Information Administration this week showed that US crude stores rose by almost 9 million barrels last week. This was on the back of a 1.3 million-barrel surplus the prior week and came in stark contrast to the -1 million barrel drawdown expected.

Technical Views

Crude Oil

For now, crude prices continue to hold in a corrective pattern against the YTD highs around 129.78. Currently, price is being underpinned by rising trend line support and, while this holds, the focus is on a breakout higher and a continuation through the upper levels at 108.74, 114.71 and 121.56, back towards highs. Momentum studies remain flat, reflecting the lack of impetus currently.