Oil Traders Cut Longs

The latest CFTC COT institutional positioning report shows that WTI traders reduced their net long positions in crude oil last week by 29,630 contracts. With this reduction, upside exposure was seen falling to a seven-month low. Despite the reduction in upside bets last week, crude has seen a much better session this week with price rallying firmly across the week. The main upside catalyst has been the news regarding a COVID vaccine.

Vaccine News Creates Support

Risk appetite was bolstered this week in response to news that the COVID vaccine being trialled by Pfizer and BioNTech over recent months has been found to be over 90% effective. In light of the results, based on months of clinical trials, the vaccine is now set to achieve US regulatory approval later this month and then will begin to be rolled out globally ahead of the end of the year.

The news caused a dramatic shift in markets this week, affecting an about-turn in risk sentiment which helped lift higher yielding assets such as equities and commodities including oil.

While the upside drive has been somewhat stifled amidst a bout of strength in the US Dollar, the near term prospects remain encouraging and as we head through the end of the year and move towards the vaccine beginning to be rolled out, we are likely to see this risk-on theme develop further, as markets begin to look optimistically towards a return to more normal conditions mid-next year.

EIA Downgrades Price Forecasts

While the weekly EIA oil inventories update is delayed this week and will be released later today instead of its usual Wednesday slot, the EIA has updated it oil price forecasts. The EIA now sees spot prices for Brent crude and WTI both lower over 2020 and 2021. According to the group’s latest Short Term Energy Outlook. The EIA now forecasts Brent prices to average $40.61 per barrel and $46.59 per barrel in 2020 and 2021 respectively. Similarly, the EIA now forecasts WTI prices to average $38.24 per barrel and $44.24 per barrel in 2020 and 2021 respectively. Much of this downward revision was, however, based on the resurgence of COVID. So, given the news this week of a vaccine, it is likely that the next STEO will better reflect the current conditions.

Technical Views

WTI

From a technical viewpoint. Crude oil prices retested the broken bearish trend line this week, which held as support and provided a platform for a rally back up to the $41.35 level where price is currently stalled. While above the $36.10 level, the outlook remains favourable with focus on an eventual break above the $41.35 resistance.

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