Oil Sinking As Risk Appetite Evaporates

The CFTC COT report reflected an increase in upside positions in WTI last week of 14,995 contracts. This latest increase in long positioning takes the total bullish position to 411,764 contracts. The increase in upside exposure came despite the growing mood of risk aversion in the markets in response to the ongoing COVID-19 outbreak. News of increasing deaths outside of China has seen a dramatic increase in investor uncertainty which has pulled risk markets firmly lower this week. Benchmark WTI prices have suffered greatly as a result of this increase in investor uncertainty.

Cases of the killer virus are now being confirmed across the oil-producing regions of the Middle East. Kuwait has so far confirmed 25 cases with Iran seeing over 139 cases confirmed, 19 dead. The rise of cases outside China threatens to severely impact oil production if processing sites need to be temporarily closed. The UAE has said that it is “ready for the worst”, with 13 cases reported there so far. Fears of how the virus will impact oil production are putting further emphasis on the March OPEC meeting which is now likely to see the group further altering its restrictions in light of the sustained sell-off in WTI.

The heavy increase in cases around the globe (cases in Europe have rocketed over the last week also) is taking a heavy toll on global investor appetite. Global asset markets have been consistently offered over the week while safe-haven assets have seen a steady build in demand. WTI prices have been lower by more than $3 this week and with the virus still very much active, continued downside seems feasible to expect here.

EIA Reports Further Inventories Build

In its latest report this week, the EIA reported a rise in US WTI levels. However, at 500,000 barrels, the increase was far below market estimates and helped alleviate some of the near term bearish pressure. The release comes on the back of a similar release from the API a day earlier. The correction is unlikely to last long, however, and longer-term accounts will likely use the bounce as a means for positioning for a resumption of the downtrend.

Technical View

WTI Crude (Bearish below 50.67)

From a technical viewpoint. WTI failed at a retest of the broken bullish trend line highlighted last week. The sell-off from the trend line has seen price pushing below the 50.67 lows and with longer-term VWAP negative, a deeper sell-off is likely unless price can find demand at the yearly S1 at 47.97. If price can recover above the 50.67 level, attention will shift back to the 57.50 yearly pivot. Until then, though, WTI traders are braced for further downside.

The Crude Chronicles - Episode 27

 

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