Crude Traders Cut Longs Last Week
The latest CFTC COT institutional positioning report shows that oil traders reduced their net long positions last week. Crude upside bets were cut by a further 19,585 contracts, taking the total position to 511,725 contracts. This latest reduction in upside positioning came amidst the decision from OPEC+ to begin easing out of production cuts as of this month.
The move caught markets somewhat by surprise given the lingering downside risks. However, oil prices have since turned sharply higher, breaking out of the block of consolidation which has kept prices trapped over recent weeks.
USD Slide Lifts Oil Demand
This week, oil prices have been lifted by the deepening slide in the US Dollar. The greenback has been shunted lower on the back of dovish comments from Fed chairman Powell at the IMF meeting last week. Powell warned over the risks to the US outlook. This week, despite better than expected inflation data, USD continued lower as traders saw nothing to challenge the Fed’s view on the economy.
EIA Reports Deep Inventories Drawdown
The latest inventories report from the EIA has also helped lift oil into the back end of the week. On Wednesday, the EIA reported a further drawdown of more than 9 million barrels in US crude stores. This was far deeper than the -2.5-million-barrel drawdown forecast and marks a sharp extension from last week’s -3.5-million-barrel draw. While gasoline stores were seen rising over the week, at 300k, this surplus was far less than the 4-million-barrel build forecast and along with a 2.1-million-barrel decline in distillate stocks, has helped lift oil prices.
IEA Raises Demand Forecasts
The IEA (International Energy Agency) had further good news for the oil market this week. The IEA raised its global demand forecasts for the year by 2 million barrels per day on average, saying the fundamentals look “decidedly stronger”. The IEA noted that with vaccine campaigns gaining momentum and the global economic recovery gathering traction also, the second half of this year looks likely to see much better demand, requiring higher supply from producers.
The rally in oil prices has seen the market turning back towards the 65.52 level resistance. If bulls can sustain another breach of the level, the focus will then turn to the 69.53 level as the next upside target. To the downside, ant correction lower should find support into the rising channel low first off, and the 54.68 level thereafter.
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