Oil Traders Add to Longs

The latest CFTC COT institutional positioning report shows that WTI traders increased their net long positions in crude last week by a further 8.255 contracts. With this latest increase, the total upside position has now risen back up eight-month highs of 531,310 contracts. The jump in upside exposure likely reflects the optimism around the ending of the Suez Canal disruption, which was holding up key oil shipments, as well as a generally favourable risk backdrop at the start of Q2.

OPEC To Begin Removing Supply Cuts

Despite the upside move in oil positioning, price action is reflecting a different story with crude prices remaining bound within a block of consolidation between the 57.50 – 62.02 levels. The correction from prior highs above the 68 mark comes amidst OPEC+’s decision to begin increasing supply once again, putting an end to the supply restrictions which have been in place for over a year now.The group announced at the end of last week that it would begin gradually adding over 2 million barrels per day over coming months with Saudi Arabia also easing out of its voluntary 1 million barrel per day supply cuts.

IMF Upgrades Global Growth Forecast

While the decision from OPEC+ is generally seen as bearish for the oil market, any further downside has been offset by the generally positive risk tone seen currently with equities markets surging back to highs as optimism continues to grow around a potential end to the pandemic now being in sight. This optimism was boosted by the IMG this week which upgraded its global growth forecasts, particularly in the US and in gulf countries, citing vaccination successes.

EIA Reports Deep Inventories Drawdown

The latest update from the EIA this week also added further support for crude traders. Headline crude inventories in the US were seen falling by 3.5 million barrels last week, well beyond the 2 million-barrel decline the market was looking for. However, there was an unexpected rise in gasoline and distillate stocks which diluted the news somewhat.

Technical View

WTI

Crude oil has sold off from the failure at 65.52 and is now heading back towards the 54.68 level where we have strong confluence between that structural support level, the rising channel low and the retest of the broken bearish trend line. While price holds a test of that area, the near term view is for a continuation higher and a break above the 65.52 level.

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