Slight Reduction In Oil Longs
The latest CFTC COT institutional positioning report shows that oil traders cut their net-long positions last week, bringing total upside exposure back from the ten-week highs recorded over the prior week. While the market remains overwhelmingly long, some corrective action is to be expected and, at less than 10%, the reduction in upside bets has done little to dent price action in crude. The market is sitting just off the YTD highs, as of writing, and remains around 16% higher from the January open.
OPEC+ Agrees Further Production Hike
In terms of the macro backdrop, the key focus for oil markets this week has been the first OPEC+ meeting of 2022. Following deliberation, the group agreed to hike oil output by a further 400k barrels-per-day in March. OPEC+ has faced huge global pressure to increase output at a quicker pace, in order to curtail soaring inflation. However, OPEC+ has remained steadfast to its plans to increase output at a gradual pace. Indeed, data shows that any of the group’s members have been struggling to fulfil the increase laid out so far. With this in mind, the latest hike agreed this week has been met with scepticism, which perhaps explains why we’ve seen little downside on the news.
Russia/Ukraine Tensions Still On Watch
Away from OPEC+, the Russia/Ukraine situation continues to underpin oil prices. Despite comments from Russia over the weekend, pushing back against reports of an imminent invasion of Ukraine, the situation remains very tense. The latest news this week is that the US is sending troops to the border, to help bolster the Ukrainian defence against any attack. With the threat of war still looming, oil prices remain supported for now.
EIA Reports Inventories Drawdown
Crude prices have also been supported this week by the latest report from the Energy information Administration. The EIA reported that commercial US crude stores fell by around 1 million barrels last week. This was in stark contrast to the 1.5 million barrel increase expected, and is solid evidence of the pickup in demand seen in the US. Crude stores are now down to their lowest levels since October 2018 despite producer ramping up output in a bid to satisfy rising demand.
Technical Views
Crude
The rally in crude prices has seen the market trading up above the 83.75 level with price near to testing the 90.85 level and bull channel top. While price remains supported for now, we are seeing bearish divergence creeping in on momentum studies which is worth noting, as it flags reversal risks. If Russia/Ukraine tensions suddenly de-escalated, this might lead to a sharp move lower in oil. Below 83.75, the 78.49 region and bull channel low, is the next support area to watch.
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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.