Oil Traders Reduce Longs

The latest CFTC COT institutional positioning report shows that oil traders reduced their net-long positions further last week. Upside bets were scaled back to 310k from 321k prior. Positioning has been choppy of late with net-length roughly sitting where it was a month ago, despite pushes in both directions. The volatility in positioning reflects the difficulty traders having in establishing a directional impulse recently. This has been clear in crude price action with the market still sitting in the middle of the 95.93 – 114.71 range.

IEA Warns Of Major Slowdown in Demand

The IEA releases its latest global oil report this week. The key takeaways from the document are that the IEA forecasts global oil demand to slow by over 50% from Q1 to Q2, a significant drop, and is expected to ease further over H2 2022. The IEA cites a more moderate economic expansion amidst higher prices and higher rates as weighing on demand. The IEA cited the tightening impact of the Russian invasion of Ukraine on supply, though noted that rising production elsewhere is largely helping offset the losses. Additionally, as demand slows, this tightness in supply will be felt less.

OPEC Reveals Russia Supply Drop

Commenting on Russian output, OPEC announced this week that Russian oil supply had dropped 9% in April. This marks the largest monthly drop since the collapse of the soviet union and has seen Russia significantly missing its output targets agreed as part of the broader OPEC+ deal. EU leaders are still trying to hash out a deal agreeing a full ban on Russian oil, which would be bullish for oil prices short term. However, due to strong opposition from some members, such as Hungary and Greece, a full ban is looking a less likely outcome with a more incremental approach to phasing out Russian oil appearing the more popular option.

EIA Reports Large Inventories Draw

The latest report from the Energy Information Administration this week showed that US crude stores fell by well over 3 million barrels last week. This was in stark contrast to the 1.4 million barrel increase forecast. Indeed, the drop came despite a further 5 million barrel drop in the US SPR, which is now at its lowest levels since 1987 as the government attempts to quell rising prices.

Technical Views

Crude Oil

The latest attempt at breaking out above the 114.71 level saw yet further selling pressure kick in this week. Crude prices have since reversed from the level and are now trading back below the 108.74 mark. With the Bull trend line still supporting, and with both MACD and RSI still bullish, however, the focus is on a further push higher.