Oil Traders Increase Longs

The latest CFTC COT institutional positioning report shows that oil traders increased their net long position by a further 1745 contracts, taking the total position to 499,096 contracts. This latest increase came amidst ongoing negotiations between OPEC+ aimed at agreeing the next phase of easing out of supply restrictions. Talks ran on two weeks longer than expected due to a rift between Saudi Arabia, which was pushing for a smaller increase, and UAE producers, who were calling for a more aggressive increase. Talks concluded this week with the cartel and non-OPEC nations finally agreeing on an increase of 400k bpd while UAE producers will be granted higher output targets as of May 2022.

Plenty of Demand Still Seen

While crude prices have been lower over recent weeks, the market is rebounding firmly this week in response to news of the agreement. There had been fears that the dispute could lead to a rift with UAE producers breaking away and flooding the market with crude. With this situation now avoided, the focus is shifting back to the broader rebound in risk appetite following volatility at the end of last week and the beginning of this week. Given the huge demand currently present in the oil market, even with the increase in production, there is still a wide margin between current levels and the market tipping into oversupply, which should keep prices supported in the near term.

EIA Reports Unexpected Inventories Build

Indeed, the rally this week comes despite the Energy Information Administration reporting an unexpected build in crude inventories. Commercial crude levels have been falling sharply for over two months before the data this week. The EIA reported that crude oil inventories rose last week by 2.1 million barrels, in stark contrast to the 4.6 million barrel decline the market was looking for. The data comes on the back of the API reporting an 806k barrel surplus. Despite the increase in headline inventories, there was some good news however with the report showing that gasoline inventories were lower, reversing the recent trend.

Technical Views

Crude Oil

The sell off in crude oil this week saw price testing the rising channel low, along with structural support at the 65.52 level, which continues to hold for now. Price has since turned higher and is now back above the 69.53 level. MACD is bearish here, warranting caution though, while 69.52 holds, the focus remains on further upside in the near term.