Oil Traders Marginally Increase Longs

The CFTC COT positioning report shows that WTI traders added marginally to their net long positions last week. Crude upside bets were increased by 378 contracts, taking the total position to 449366 contracts. Despite the increase in upside positions last week, crude oil prices have come under fresh downside pressure this week as the strength in US Dollar has created a drag on commodities prices and risk assets in general.

The global fundamental backdrop has taken on a more pessimistic tone over recent days given the rising concerns over the prospect of a second wave of COVID-19 globally. Scientists and health authorities have warned that the spread of the virus is once again increasing exponentially leading to fresh measures. In the UK, a new set of six months’ worth of restrictions have been announced this week and there are fears that countries in the Eurozone might soon have to do more.

The resurgence in focus on the virus is dampening the demand outlook for crude oil particularly with regards to the aviation sector which has seen a massive drop in travel demand.

OPEC Adding to Uncertainty

Oil prices have also come under pressure this week from reports regarding OPEC expectations. the market is seeking clarity on whether the growing uncertainty in the demand will see the group announcing further measures. However, the energy minister of Saudi Arabia ( OPEC de-facto leader) this wee refused to offer any details on the group’s next move and the added uncertainty among traders is creating a dirge in sentiment.

At the recent OPEC+ meeting held last week, which was virtual, the Saudi oil minister urged OPEC+ producers to stick to their production targets. OPEC has traditionally struggled with adherence and Prince Abdulaziz Bin Salman struck a much more authoritative tone when addressing his counterparts.

In a sign of just how severe the current global situation is, OPEC+ compliance with the cuts announced at the start of the year has been around 98%, marking the highest level of compliance for the group.The market is now keen to see whether the group steps up its production cuts in coming months. This will obviously depend greatly on the path of the pandemic and the global recovery.

EIA Reports Further Drawdown

In its latest release, the US Energy Information reported a fruther drawdown in US crude stockpiles. Inventory levels fell by a further 1.6 million barrels last week, following on from a more than 4 million barrel decline a week prior. This latest decline is further evidence of the ongoing pickup in demand and activity in the US.

Technical Views

WTI (Bearish below 41.35)

From a technical viewpoint. Oil prices are currently capped at the bearish trend line from 2020 highs, with the 50dma also offering resistance around the 41.35 level which remains the ley local resistance to break. To the downside, should prices fail here and reverse, the next main support to note is down at the 29.14 level.

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