Oil Traders Increase Longs

The latest CFTC COT institutional positioning report shows that oil traders increased their net long positions last week by 17,273 contracts, taking the total position up to 480,811. The increase in upside positioning in the oil markets reflects the much more encouraging risk backdrop seen across markets in light of the recent vaccine news.

Vaccine News Offering Support

A handful of firms have now published results showing their respective COVID vaccines to be effective in the 70% - 90% range. With many leading governments, such as those in the UK and the US, having confirmed plans to push for regulatory approval and begin introducing the drugs to their populations by the end of the year, markets are sensing some light at the end of the tunnel.

If the current projections of returning to normal by spring next year are correct, this would introduce a wave of demand for oil products across a range of sectors such as transport, aviation and manufacturing, leading to much higher prices over the next 12 months. With this on the radar, speculative traders are already increasing their long positions with a view to gain on the initial upside move.

Better Industrial Data

Oil prices have also been higher this week in reaction to the latest set of PMI data sets out of the UK, US and Eurozone. With manufacturing in each economy seen to have improved over the last month (despite expectations for deterioration), traders are hopeful that the current lockdowns in place across many parts of Europe have not caused the sort of downturn seen during the Q1 lockdowns.

EIA Reports Inventories Decline

The EIA also helped lift the mood for oil traders this week as its latest weekly report reflected a further inventories decline. The EIA reported an 800k barrel build in inventories last week, despite expectations for an increase. Oil demand has been increasing steadily over recent months, despite the fresh wave of concerns over the still surging pandemic. With vaccine hopes now taking centre stage, it looks like there is plenty of room for continued upside in oil.

Technical Views

WTI

The breakout above the bearish trend line from 2020 highs has started to gather proper traction this week with price breaking out above the 41.35 level and the summer highs. While this breakout remains, the course is clear for further appreciation towards the 50.32 level next. To the downside, any dip back below the 41.35 level will bring the 35.79 level back into focus.

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