Risk Assets Back In Demand
WTI traders increased their upside exposure in oil once again last week. The net long position was increased by 41,828 contracts to 522,369 contracts, marking fresh four month highs in the bullish bets. The heavy increase in upside exposure comes amidst the ongoing improvement in global investor appetite sparked by the recent vaccine news. With several firms having submitted their vaccines for approval from health authorities in the US and the eurozone, investors are rushing back into risk assets. Commodities prices, including oil, have seen a fresh surge of demand in response to the headlines and look set for further gains throughout the end of the year.
Oil Shrugs off OPEC Issues
The rally in oil prices this week has come despite trouble with OPEC+. OPEC and its group of non-OPEC allied nations, led by Russia, was due to hold its latest meeting yesterday. However, the meeting was postponed until today due to disagreements over the production cuts. The market has been expecting that OPEC+ would extend the current production cuts, which are due to expire in January 2021. However, in light of the recent vaccine news which is developing at a fast pace (UK government has granted Pfizer’s vaccine regulatory approval this week) some nations might now be pushing to allow the cuts to expire.
Better manufacturing data over this week and last has also helped lift demand for oil prices. With the factory sector seen to have expanded over the last month in the US, EU and the UK, the demand outlook for oil has ticked up. Markets had been forecasting a weakening in activity over the month due to the resurgence in COVID. However, activity was actually seen to have grown further, offering yet more good news to traders this week.
EIA Reports Fresh Drawdown
Finally, the EIA reported a further drawdown in its latest weekly report this week. US WTI levels were seen falling by 700k barrels over the week, marking the second straight week of inventory drawdowns, which has also helped lift oil prices.
The breakout above the bearish trend line from 2020 highs is gathering further momentum here. Price has now eclipsed the highs posted over the summer and is on course for a test of the 50.32 level next. While the 41.35 level holds as support, the near term outlook remains firmly bullish here.
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