Crude Traders Add to Longs

The latest CFTC COT institutional positioning report shows that oil traders increased their net long positions in crude last week by a further 10,302 contracts, taking the total position to 500,013 contracts. This latest increase in upside positioning in oil reflects the ongoing build in positive sentiment which has helped the market rally across the last two months. This week, crude prices traded back up to just shy of recent highs, now sitting only a few dollars off the 2021 peak.

Reopening Optimism Driving Rally

The core driver behind the ongoing rally in oil is the wave of optimism stemming from global reopening. With the US and UK pushing ahead with reopening as vaccination success helps quell the virus, traders are expecting other key economies to follow suit in the coming weeks and months. With the reopening of these economies comes the return of demand for oil. In the US, traders are looking ahead to the summer driving season which is expected to be record breaking this year on the back of the pandemic. Meanwhile, in the UK and Europe, the big focus is on the potential return of the summer tourist season and expectations of a lift in demand from the aviation sector as travel bans and lockdowns come to an end.

EIA Reports Another Inventories Build

The Energy Information Administration had further good news for oil bulls this week. The EIA reported another drawdown in US crude stockpiles last week with oil inventories falling by a further 427k barrel drop. While this was below the 2.8 million-barrel drop forecast, with oil sentiment turning higher the news was taken as broadly positive and oil prices have continued higher in response. Notably, the report showed that oil stockpiles on the East Coast, fell to their lowest level on record. Meanwhile, gasoline inventories were seen rising over the week while distillate stockpiles fell.

Technical Views

WTI

The rally in crude oil this week has seen price breaking back above the 65.52 level, testing last week’s highs which, for now, sit as the high watermark for the month. While price remains bullish here, the bearish divergence on display in momentum studies suggests caution here. Should price correct back below the 65.52 level, expect the rising channel support and 57.24 to act as the next demand zones. To the topside, while price holds above the 65.52 level, the 2021 highs (circa 68.) and the 69.53 level are the next key, upside markers to watch.

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