Oil Traders Continue to Reduce Longs
The latest CFTC COT institutional positioning report shows that oil traders continued to pare upside positions last week. This reduced upside exposure came despite a recovery in oil prices last week, though this has since petered out with oil now trading back below last week’s highs. Recent price action reflects the difficult position oil traders are in currently, as the market remains caught between longer-run growth/demand fears one hand, along with co-ordinated actions to bring oil prices down, and better post-COVID demand (particularly aviation sector) and upside risks from the Ukraine conflict, on the other.
IMF Growth Downgrade Hits Oil
The IMF released its latest global outlook this week, in which it cut global growth forecasts for the year by almost 1%. The group cited the uncertainty and clear downside risks from the Russian invasion of Ukraine as a key driver for the revision, along with the impact of soaring global inflation.
China Demand Concerns
The latest data out of China this week showed that economic activity slumped in March, a clear result of the fresh lockdowns recently announced there to combat a COVID resurgence. With the risk that lockdowns might drag on, the near-term demand outlook there looks uncertain, causing further worry for oil traders.
Ukraine Violence Underpinning Prices
However, oil prices have been underpinned this week by fresh fears over escalating violence in Ukraine. With Russia reportedly close to toppling the city of Mariupol and launching a fresh offensive across the Donbas region, traders fear a ceasefire is now looking less likely. Russia has stepped up its aggression against Ukraine this week, launching huge missile offensive. With Western leaders now warning that the situation might continue for several months, oil looks prone to further upside moves.
EIA Reports Huge Inventories Draw
The latest report from the EIA this week has also been supportive for oil prices. The EIA reported a more than 8-million-barrel drawdown last week. This was in stark contrast to the 3-million-barrel surplus expected and represents a sharp swing from the prior week’s 9 million+ barrel surplus.
OPEC Undershooting Production Targets
Additionally, news that OPEC+ continues to undershoot its output targets is also helping create a floor under crude. Data shows that the group was around 1.45 million barrels per day under its target last month. This reportedly comes as Russia has downgraded production in response to Western sanctions. The West has been calling on OPEC to hike its production output in a bid to quell rising energy prices. However, the group has so far failed to agree to these demand and is currently struggling meeting the existing quotas.
Technical Views
Crude Oil
The correction in oil prices from the 129.78 level has seen the market finding firm support around the retest of the broken bull channel and 95.93 support area. For now, this region is holding as a floor and, while above here, further upside cannot be ruled out. However, should we slip below the 95.93 level, focus will turn to deeper support at 83.75, with the channel low just beneath.
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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.