Crude Traders Cut Longs

The latest CFTC COT institutional positioning report shows that oil traders reduced their long positions last week by a further 11,996 contracts, taking the total position size back down to 525,442 contracts. This latest reduction in upside positioning came amidst the correction from recent highs as oil pulled back below the 65 level to lows of around mi-59 earlier this week.

Stronger Dollar & Weaker Risk Appetite Weighing on Oil

The catalyst behind the recent pull back in oil has been the combination of a strong US Dollar and weaker risk appetite as a result of resurgent COVID fears. The Dollar has been moving higher in the wake of the March FOMC following a set of upgraded economic forecasts from the Fed which was forced to acknowledge upside risks in the outlook for the first time. This week, the sell-off deepened as traders digested news of fresh and extended lockdowns in the eurozone as a result of a potential third wave of the virus there. With unrestricted European travel this summer now looking in jeopardy, the demand outlook for oil has deteriorated, dragging prices lower.

Suez Canal Disruption Causes Oil Price Spike

In to the middle of this week, however, and oil prices were seen rebounding sharply. The driver behind the upside move was news of supply disruption emanating from the blockage which occurred this week in the Suez canal. A bulk carrier ship has run aground in the canal and effectively created a blockade causing severe gridlock on the busy shipping route. The blockage has caused considerable delay to oil shipments. The oil industry is currently estimating that around 10 million barrels of oil are locked in transit currently with more expected to build up given that around 10% of global oil supply passes through the canal.

EIA Reports Further Inventories Build

The news of the blockage this week has helped offset the bearish update from the EIA. In its latest weekly report the EIA recorded a further surplus in US crude inventories along with similar rises in gasoline and distillate stocks. The firmly bearish report would have no doubt dragged oil prices further lower this week if it wasn’t for the Suez news and reflects that demand is weakening in the US.

Technical Views

WTI

The breakdown below the rising trend line in crude has seen the market moving lower within a bearish channel. For now, the pattern is seen as a corrective bull-flag structure, suggesting an eventual break higher. However, if price breaks below the 58.90 level, there is room for a dip to 53.90 next.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 65% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.