Oil Traders Reduce Longs Further
The latest CFTC COT institutional positioning report shows that crude traders reduced their net long positions again last week, marking the third consecutive weekly reduction. The reduction came as prices traded up to fresh multi-year highs, preceding the decline which has set in since. Oil prices quickly corrected from the 95.93 region, trading back down beneath the 90.85 level, as of writing. While the move is viewed as corrective, given the broad bullish trend, any further position squaring this week will likely see the move extending down towards the 83.75 level near term.
US-Iran Deal Impact
There have been a few factors weighing on oil as price traded up to its recent peak. Firstly, the prospect of a fresh US-Iran deal, and the easing of sanction on Iran, risks bringing back a huge source of supply to the market. If the deal is agreed, the US will likely be successful in driving oil prices lower near term as the supply/demand balance shifts. In addition to OPEC gradually increasing its production output in order to unwind the pandemic production cuts, the supply/demand outlook is shifting.
Resurgent US Dollar
Another key element which has dampened the recent bullish momentum we’ve seen in oil, is the return of the US Dollar. With the Dollar recovering over last week, avoiding the deeper correction which some were calling for, oil prices have taken a knock. A string of better-than-expected US data, including jobs, CPI and retail sales, is keeping the market firmly focused on Fed tightening. With the Fed expected to lift rates in March and with the market looking for at least four hikes this year, USD looks likely to retain support in the medium term, weighing on oil prices.
Russia-Ukraine Tensions Subside
Oil prices have also been a little lower this week as a result of optimism around Russia/Ukraine tensions. With reports that Russia has begun moving troops away from the border, amidst denials that it ever intended to invade Ukraine and was simply conducting military exercises, oil prices found some relief and traded lower. The situation is ongoing however, and oil prices are still subject to volatility on any sudden shift in news flow.
EIA Reports Unexpected Inventories Build
Finally, the latest report from the EIA this week did little to help crude prices. The EIA reported an unexpected in crude stores last week, with inventories rising by over a million barrels, despite expectations for a 1.6 million barrel increase. While headline crude stores rose, gasoline stocks dropped, along with distillate stockpiles, offsetting some of the bearishness from the report.
Technical Views
Crude
Crude prices are turning lower from the 95.93 level and the breach of the bull channel top. While below the 90.85 level, and with MACD and RSI turning lower, the focus is on a deeper correction towards the 83.75 level next. Below there, 78.49 and the bull channel low are the next supports to note.
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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.