Oil Traders Reduce Longs
The latest CFTC COT institutional positioning report shows that oil traders reduced their net-long positions once again last week. While there was firm buying in crude, brent positions saw a larger reduction in upside exposure, resulting in a net reduction in oil upside over the week. Despite the reduction in upside positioning, oil prices have been higher again this week with crude prices now testing the April highs.
Ukraine Conflict Keeps Upside Risks Intact
Oil prices continue to derive firm support from the backdrop of the ongoing conflict in Ukraine. With violence between Russia and Ukraine showing little sign of stopping in the near-term, oil supply remains significantly disrupted. The main focus this week has been on the EU plan to move away from Russian oil and gas within a six-month timeframe. Given that the EU relies heavily on Russian oil imports (accounting for roughly a third of imports by 2020), there is now a major focus on finding alternative providers.
OPEC Meeting in Focus Today
Looking ahead, the key focus today will be on the OPEC+ meeting due to take place later today. The group has come under increased pressure to hike output at a faster pace in order to help combat the spike in energy prices linked to the Russian invasion of Ukraine. However, the group has refrained from any quicker pace of production hikes, sticking to it’s own plan of adding back in around 400k barrels per day, each month. Additionally, data -shows that OPEC members have been failing to meet their current monthly quotas, suggesting that any further increases in monthly quotas would have limited impact.
EIA Reports Headline Inventories Build
The rally in oil prices this week comes despite the latest report from the Energy Information Administration. The EIA reported a 1.3 million barrel increase on the week, marking an extension from the previous week’s 0.7 million barrel increase and a firm beat on the 0.7 million barrel drawdown the market was looking for. However, there were solid drawdowns in both gasoline and distillate inventories, which fell by 2.2 million barrels and 2.3 million barrels respectively.
Technical Views
Crude Oil
For now, oil prices remain within the recent 95.93 – 108.74 range which has framed price action over the last six week. However, price is once again testing the upper end of that range, suggesting room for a break higher, with the market still underpinned by the rising trend line. Above 108.74, 114.71 is the next resistance to note. To the downside, any break of the 95.93 level will put the focus on deeper support at 83.75.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.