Oil Longs at Six Week Highs

The latest CFTC COT institutional positioning report shows that WTI traders increased their net long positions last week by a further 6918 contracts, taking the total position to 518,469 contracts. With this latest increased, upside bets in crude are now at a six-week high. The increase in bullish exposure reflects the broader pick up in risk assets seen over recent weeks which has furthered the breakout in crude prices.

Crude prices continue to benefit from the weakness in the US Dollar which, despite a brief rally over recent days, remains heavily lower from the highs printed last year. With Biden confirmed as the incoming president and with the democrats having taken control of both the house and the senate, the US Dollar is forecast to move lower, which should keep oil in demand.

Recent news from OPEC has also offered WTI a boost. In light of the concerns around the near-term demand outlook as a result of ongoing COVID pandemic, OPEC+ agreed to keep production at current levels, avoiding an increase, with Saudi Arabia agreeing to a 1 million barrel per day reduction in production levels.

EIA Raises Price Forecasts

The EIA has also provided good news for oil bulls this week. The association reported a further drawdown in US crude levels which feel by a further 3.2 million barrels, in line with expectations. US crude stockpiles have now been in drawdown for three straight weeks. Along with the inventories data, the EIA also updated its short-term energy outlook. In its latest update, the EIA now forecasts WTI prices to average $49.70 per barrel over 2021, up from the $48.53 forecast in the December STEO. The EIA also forecasts crude prices to appreciate further in 2022, projected to average to $49.81. Despite the upgraded forecasts, the EIA was keen to highlight the uncertainty in the outlook as a result of the pandemic. On this, the EIA said: “Reduced economic activity and changes to consumer behaviour in response to the Covid-19 pandemic caused energy demand and supply to decline in 2020.”

Technical Views

WTI

Crude prices continue to trade higher within the bullish channel which has framed the recovery off the 2020 lows. Price is now trading firmly above the 49.52 level and is on course to test the 54.68 level next. It is worth noting that momentum studies are flagging bearish divergence and as such a correction lower is not ruled out. While within the bull channel, however, the bias remains bullish.

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