Crude Traders Cut Longs

The CFTC COT institutional positioning report shows that WTI traders reduced their net long positions last week. WTI upside bets fell by 10,858 contracts, taking the total position to 461,911 contracts. The latest reduction in crude upside exposure comes amidst a backdrop of intensifying focus on resurgent COVID infections globally. Health authorities have waned that a second wave of the virus is now underway and markets are sensitive to headlines regarding further lockdown measures. For oil traders, the prospect of further lockdowns, as we have seen announced in some European countries this week, poses a serious threat to the demand landscape. Oil prices were heavily impacted by the loss of demand during the first set of lockdowns in Q2. However, traders are taking some respite in the fact that, for now at least, it appears that nationwide lockdowns are not likely to be reinstated, with countries opting to use lockdowns on a local level, which should reduce the loss of demand for crude.

OPEC Report on Watch

The market is also bracing itself for OPEC’s latest World Oil Outlook which is due to be released later today. The report will contain an updated set of forecasts through to 2045. OPEC recently reduced its global demand forecasts for this year and next and traders will now look to see how the cartel projects the oil market will recover in subsequent years. One of the key headwinds for oil prices in the longer run, which traders will be looking for insight into, is how the US economic recovery will impact US shale output. Should US shale output start to rise significantly again, this will create a drag on oil prices as was seen ahead of the pandemic.

EIA Reports Inventories Build

Oil prices have been higher this week despite the US Energy Information Administration reporting an increase in US crude levels last week. The EIA reported a more than half a million rise in US crude inventories, following weeks of drawdowns. While the majority of states have reopened, there are currently 6 states which have reinstated lockdown measures as well as 5 which are pausing their reopening measures. If virus levels continues to rise into the winter, the number of local lockdowns could feasibly increase, negatively impacting oil demand.

Technical Views

WTI (Bullish above 41.35)

From a technical viewpoint. The double bottom, with bullish momentum divergence, at the 35.79 level has seen WTI rallying back up to test the bearish trend line from 2020 highs. Price is now looking to break back above here and if bulls can sustain a break of the 41.35 also this will put the 50.32 resistance firmly back on the radar, keeping the near term outlook bullish.

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