Oil Traders Scale Back Longs (Very Slightly)
The latest CFTC COT institutional positioning report shows that oil traders reduced their net long positions last week by 1k contracts. Sitting at 333k contracts, down from 334k contracts a week prior, the lack of volatility in positioning reflects the stalemate we’ve seen recently between opposing macro factors. However, despite the lack of major positioning shifts, oil prices have been firmly higher over the last week with crude futures rising around 12% since the last week of May.
China Demand Lifting Oil
In terms of supporting factors, news of China re-emerging from lockdown has been a major bullish catalyst for oil. The 2-month lockdown in Shanghai struck a major blow to demand and the subsequent easing of restrictions since June 1st has been met with a strong rebound in the demand outlook. With China activity on the rise again and with the US approaching the summer driving season, expectations for a further pickup in demand are helping support oil prices.
Ongoing Impact of Ukraine Conflict
The ongoing conflict in Ukraine is also having a supportive impact on oil prices. With the EU moving to ban around 60% of Russian oil imports, to be scaled up to 90% by year end, market tightness is back in full focus. Additionally, Russia has been producing less and less oil over the course of the conflict, leading OPEC to up its production quotas to cover for the shortfall. With Russian supply reducing at the point where Chinese demand is re-entering the market, the near-term prospects for oil look bullish.
USD Strength Still An Issue
While these factors are helping lift oil prices, periods of USD strength recently have acted as a headwind. With the market bracing for a fresh rate hike from the Fed next week, USD looks vulnerable to fresh upside near-term. Tomorrow’s US CPI number for May might provide the catalyst for a renewal in USD buying ahead of the FOMC, which would likely drag oil prices down near-term.
EIA Reports Unexpected Drawdown
The latest report from the Energy Information Administration yesterday has given some pause to the rally in crude. The EIA reported a more than 2 million barrel surplus last week, in stark contrast to the almost 3 million barrel drawdown forecast. The uptick in inventories is attributed to the record output we are seeing from refiners as they struggle to keep pace with demand. The US SPR was seen falling to its lowest level since 1987 as the US government continues its fight against higher energy prices.
Technical Views
Crude Oil
The rally in oil prices this week has seen the market continue to grind back towards yearly highs. Price has now broken back above the 121.56 level and, with both MACD and RSI bullish, the focus is on a continued push towards the 129.78 level. To the downside, 114.71 is key support ahead of the bullish trend line.
Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
Past performance is not indicative of future results.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 75% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Futures and Options: Trading futures and options on margin carries a high degree of risk and may result in losses exceeding your initial investment. These products are not suitable for all investors. Ensure you fully understand the risks and take appropriate care to manage your risk.
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.