Oil Longs Increase Amidst Supportive Backdrop

The CFTC institutional positioning report shows that non-commercial traders increased their net long positions in WTI last week by 9,125 positions, taking the total position to 548876 contracts. Oil prices continue to be well bid despite the lack of upside momentum in price action currently.

Concerns around the prospect of a second wave of the COVID-19 virus have been the main downside drag on oil prices over recent weeks. With many countries around the world reporting a fresh increase in infections and deaths following the easing of lockdown restrictions, traders are now trying to gauge the likelihood of lockdown measures being reintroduced. For now, at least, it seems that countries are seeking to avoid a return to blanket, nationwide lockdown measures, which is help keeping risk sentiment supported.

The sell-off in the US Dollar has also helped keep oil prices afloat here. The Dollar has been heavily sold over the last month in response to dismay with regard to the US handling of the virus outbreak as well as an expression of uncertainty regarding the political environment in the US given Trump’s decreasing likelihood of being re-elected in November.

Speculation around a potential OPEC+ extension is also providing some support at current levels. The current production cuts are due to expire at the end of the month though, given the renewed concerns around COVID-19, the market is anticipating the likelihood of measures being extended. Saudi Arabia is reportedly pushing for cuts to be extended through the end of the year and into 2021 though, as yet, uptake on this idea appears limited and nothing has been confirmed yet.

The latest weekly update from the Energy Information Administration has offered support this week also. The EIA reported a significant inventory decline of more than 10 million barrels last week, offering encouraging indications that the pickup in activity in the US, post lockdown, is translating through into higher oil demand. However, the report was not completely bullish as gasoline inventories were seen higher over the week.

Technical Views

WTI (Bullish above $41.35)

Having broken below the rising channel which formed over the initial recovery, WTI prices are still drifting higher though momentum has weakened significantly. Price has been moving in a very shallow rising wedge pattern, accompanied by plenty of bearish divergence in momentum studies, suggesting the risks of a move lower. Price is currently hugging the $41.35 level which, if held, keeps the $50.32 level in view next.

The Crude Chronicles - Episode 49

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