Crude Traders Cut Longs

The latest CFTC COT institutional positioning report showed that crude traders reduced their net long positions in oil by 10,272 contracts last week, taking the total position back own to 489711. With this latest reduction, net long exposure in crude has fallen to a six-month low. Despite the reduction in upside positioning, however, price action has continued to drift higher with crude this week breaking out to its highest levels since early February, just off the yearly highs around 67.90.

Weaker US Dollar Helping Oil

The rally in crude over recent weeks has largely been a function of the weakness in the US Dollar which has seen a more than 3% decline against its major trading counterparties. Despite a tentative recovery this week, a softer greenback has been good news for commodities prices, including oil. The Fed’s continued insistence that any peak in inflation over the coming months will be transitory has helped calm the Dollar following a rally over Q1. With the Fed sticking to its view that it will not be scaling out of easing this year, it will take a significant uptick in data to see the Dollar surpass those Q1 highs.

Risk Sentiment Remains Firm

Crude has also been lifted by the broader risk backdrop this week with global equities remaining largely well supported as traders stay focused on the vaccination drive and re-opening effort. With vaccination numbers now starting to gain better traction in Europe, there is hope that the tourism sector will be able to return this summer, which would create a large demand boost for oil via the resurgence of the aviation sector.

EIA Reports Large Crude Draw

The latest update from the Energy Information Administration this week has also helped lift crude prices. The EIA reported an 8 million barrel drop in crude stockpiles, far surpassing the 2.3 million-barrel decline the market was looking for, reflecting the uptick in demand as reopening continues in the US. Looking ahead, expectations of a record-breaking summer driving season in the US are helping lift the demand outlook for oil which should keep prices supported going forward.

Technical Views

WTI

The rally in crude this week has seen the market breaking back above the 65.52 level with price now just short of testing the 2021 highs around 67.50. Key resistance sits above at the 69.53 level which bulls will need to clear to encourage fresh momentum in the move. Some caution warranted around current levels given the bearish divergence in momentum studies though any correction should find support into the rising channel low and the 57.24 area.

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