Oil Traders Cut Longs

The latest CFTC COT institutional positioning report shows that crude oil traders cut their net long positions by 19133 contracts last week, taking the total position to 508584. This reduction in upside exposure likely reflects the return of COVID concerns which have mounted again in recent weeks, linked to fears over the progress being made with the global vaccination effort.

Concerns Around Vaccination Progress

There have been issues with vaccine supplies in the UK and Europe, leading to fears that the current lockdowns underway there will end up carrying on for longer than currently anticipated. With infection rates and deaths still elevated on a global scale, travel restrictions remains in place across most countries and are being extended in many. Given the major hit the aviation sector is likely to suffer over the traditionally busy Easter period, the loss of demand could see oil prices sent sharply lower.

Impact on Aviation Sector

The return of demand from the aviation sector this year is a key focus point for oil traders and should the current lockdowns push this anticipated recovery back until later in the year, the current oil rally is likely to see some correction in the meantime.

OPEC Demand Concerns

OPEC has expressed concern over the state of the pandemic and the implications for the oil market as a result of ongoing lockdowns. However, there is two way risk here; should vaccination programmes hit their current government targets, this could lead to an upward repricing in the oil demand outlook.

EIA Reports Further Draw

The EIA this week reported a fourth consecutive week of drawdowns in US crude inventories which saw a further 10 million barrel drawdown. Oil demand has been steadily improving in the US, despite the ongoing restrictions and lockdowns in some areas, suggesting that the recovery is still on course there.

Technical Views

WTI

Oil prices continue to grind lower within a corrective bull flag pattern at the top of the recent rally. This structure suggests that a break higher is still likely with bulls looking to test the 54.82 level next. To the downside, the main support is at 50.32

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