Crude Traders Increase Upside Bets
The CFTC COT institutional positioning report showed that WTI traders increased their upside exposure in oil last week by 9625 contracts, taking the total position to 471536 contracts. Despite the increase in bullish bets, crude oil price action has been fairly subdued over recent weeks with price continuing to trade the range between 35.79 and 41.35.
In terms of fundamental drivers, the weakness in the US Dollar as a result of heightened political uncertainty ahead of the US elections, continues to keep oil prices supported. With the prospect of a Democrat win growing in probability, the greenback has seen increased selling over recent weeks. This dynamic is likely to intensify as we draw nearer to the elections, provided polls continue to favour a Biden win, which should help keep oil prices supported.
Second Wave Risks Causing Concern
Despite the upside support from a weaker Dollar, the risks around the growing second wave of COVID-19 are raising serious questions over the demand outlook for oil. With an increasing number of European countries looking at further lockdown measures and travel bans, the backdrop is fraught with growing downside risks. Most nations have so far show reluctance to activate further nationwide lockdowns, with most preferring to use local lockdowns. However, as Europe moves into the winter months this could change, raising a serious economic threat.
OPEC Cuts Demand Outlook Once Again
In its monthly report, released this week, OPEC cut its global oil demand outlook once again for 2021. The group is now forecasting demand to rebound more slowly across 2021 as a result of the resurgence of coronavirus. In its statement, OPEC said: “While the 3Q20 recovery in some economies was impressive, the near-term trend remains fragile, amid a variety of ongoing uncertainties, especially the near-term trajectory of COVID-19. As this uncertainty looms large, amid a globally strong rise in infections, it is not expected that the considerable recovery in 3Q20 will continue into 4Q20 and in 2021.”
For now, OPEC+ is still planning to scale back its current production restrictions. However, depending on the path of the pandemic over coming months and the realised hit to demand which could feasibly see the cartel and non-OPEC allied members postponing the move in the worst-case scenario.
WTI (Bullish above $41.35)
From a technical viewpoint. Crude oil prices are once again putting pressure on the $41.35 resistance, following the recovery off $35.79 lows. With price having broken above the bearish trend line from 2020 highs once again, a break of $41.35 would be a strong bullish signal in the near term, turning attention to the $50.32 level next.
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