Oil Traders Cut Longs Again
The latest CFTC COT institutional positioning report shows that oil traders cut their long positions once again last week. Total upside exposure was trimmed by a further 5k contracts from 33k to 328k. This reduction in upside bets comes amidst the recent pullback we’ve seen in oil prices and has been well-reflected in this week’s price action. Crude prices are currently down almost 7% from recent highs.
Fed Rate Hike Weighs on Oil
There are a number of factors weighing on oil prices currently, chief among them is the fresh rally in USD. The greenback has broken out to fresh highs this week, driven by hawkish Fed expectations and a hawkish FOMC meeting yesterday. With the Fed hiking rates by .75%, its steepest increase since 1994, the stage is set for further USD appreciation. The Fed signalled a further .75% hike to come in July with at least another 1% in hikes to come beyond that meeting. Year end rate projections have also been lifted to 3.5% - 3.75%.
Profit-Tax Impact
Oil prices have also been hit this week by news of a potential oil-profit tax in the US. Lawmakers are mulling a new 21% windfall tax to be applied to oil companies seeing excessive profits from the spike in energy prices. The tax would be applied to companies whose profits total more than $1 billion annually and comes on the back of president Biden criticizing oil companies last week, claiming they are intentionally holding back on supply in order to keep prices at highs.
EIA Surplus Reported
The latest report from the Energy Information Administration this week has also added downside pressure for oil prices. The EIA recorded a 2 million barrel surplus in US crude stores last week, in stark contrast to the almost 3 million barrel deficit projected. Refiners have been pushing hard to keep up with demand as the US summer driving season approaches. Last week’s surplus comes on the back of the huge 5 million barrel deficit seen the week before.
Technical Views
Crude Oil
The rally in crude oil prices recently has seen the market grinding back up towards the 121.56 level. However, sellers have taken over once again and price is now turning lower from here. With MACD and RSI both turning bearish, risks of further downside are growing. The key support level to watch is the bullish trend line and 108.74 level. While above here, the broader outlook remains bullish. A break here, however, will open the way for a run down to 95.93 next.
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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.