Oil Traders Increase Longs
The latest CFTC COT institutional positioning report shows that oil traders increased their net long positions last week by around 10k contracts. Following weeks of prior reduction in upside bets, it seems that traders are now once again anticipating a fresh move higher in oil. Those who joined the party late will no doubt be frustrated by the moves lower this week. Oil prices plunged around 14% this week alone and are now down more than 20% on the year.
Oil Falls on USD Rally
The drop in oil prices this week was largely fuelled by the fresh show of strength in the US Dollar. USD was seen rallying in response to hawkish Fed expectations with the market anticipating a further .75% hike in July. Indeed, USD was well bid into the middle of the week as traders awaited the latest set of FOMC meeting minutes. While the minutes themselves were hawkish, cementing expectations for a larger hike again this month, the USD rally has paused for now. However, the next round of US jobs data due tomorrow might well prove to be the catalyst for a further rally if forecasts are satisfied or beaten.
OPEC Increases Oil Output
Away from the USD, oil prices have been trading lower since the OPEC announcement last month which saw the cartel agreeing to dramatically up oil production over this month and next. With output now set to around 650k barrels per day, OPEC has effectively brought forward the end of its production normalisation program by a month.
Recession Fears
Oil prices have also come under pressure from growing recessionary fears. With the Fed intent on pushing ahead with aggressive tightening and other global central banks following suit, markets are increasingly concerned over the global growth outlook. The IMF last month downgraded global growth projections for the year, citing soaring inflation, tighter monetary conditions and the impact of the Ukraine war. These factors combined are likely to weigh on oil demand into the back end of the year.
EIA Release Delayed
Traders awaiting the next weekly update from the Energy Information Administration will have to wait until early next week as the data is delayed following the US holiday over the weekend. We’ve seen a steady trend of inventory drawdowns recently, showing that demand across the US summer driving season is still strong despite higher gasoline prices.
Technical Views
Crude
Following the breakdown through the bullish trend line and 103.80 level, crude prices are now sitting on support at the 95.93 level. With both MACD and RSI bearish, the focus is on a further break lower near term with 83.75 the next target, unless bulls can get back above the 103.80 level quickly.
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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.