Oil Traders Increase Longs Again
The latest CFTC COT institutional positioning report shows that oil traders increased their net-long positions again last week from 214k to 246k. This marks the second consecutive weekly build in long positions with total upside bets now back up to where they were around the start of August. Despite the uptick in bullish bets, crude prices have been back on the ropes this week with crude futures reversing from initial highs, now down around 10% from their August peak on Monday.
Recession Fears & Fed Expectations Hit Oil Sentiment
Crude sentiment has been hit this week by a double whammy of global recession fears and hawkish Fed expectations/bullish USD sentiment. On the back of Fed chairman Powell’s hawkish comments at Jackson Hole last week, we’ve heard further such hawkish comments from other Fed members this week. Both Williams and Mester have echoed Powell’s comments this week, forecasting rates to continue to rise near-term and into next year. Mester said yesterday that she sees a rate cut in 2023 as unlikely, adding further fuel to the fire.
Rate-Hike Expectations
With the Fed signalling its intention to plough ahead with rate cuts and with hawkish expectations ahead of the ECB next week, traders are focusing once again on global growth fears. With excessive inflation across the board and aggressive central bank monetary tightening, fears of a global slow down are weighing on the oil demand outlook. Weak data out of China over recent weeks has re-sharpened concerns there and, given the risks of further lockdowns in China through year-end, crude sentiment is weakening.
Russian Oil Price-Cap
Oil prices have also come under pressure this week from reports that G7 finance ministers plan to discuss a cap on Russian energy prices when they meet on Friday. However, Russian has warned that it will not co-operate with such a move and will instead ship oil elsewhere. Bloomberg has been reporting this week on fears that Russian oil is reaching other countries via-back channels. China reported Malaysian oil imports of more than 800k barrels last month, more than the country actually produced, according to data. Commentators suggest that the figures are meant to mask off-book imports of Russian oil at a time when China has reported Russian oil imports as hitting 5-month lows.
EIA Reports Further Drawdown
Indeed, the downturn in oil prices continued this week despite the EIA reporting a larger-than-forecast drawdown in crude stores last week. The EIA reported a 3.3 million barrel decline, the same as the week before. Additionally, the EIA reported that demand for oil and gasoline products was the highest it had been since 2019 last month. However, with trader attention elsewhere, the data wasn’t enough to fuel a rally in crude prices.
Technical Views
Crude Oil
The initial attempt at breaking out above the bear channel from YTD highs has seen crude prices stalling into the 95.93 level resistance. Given the downtrend, while this level holds, the focus is on a further push lower with a break of the 85.53 level top open the way for a run down to 79.21 next. To the topside, if bulls manage to break above 95.93, 103.80 is the next level 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.