Oil Traders Cut Longs Further
The latest CFTC COT institutional positioning report shows that oil traders reduced their net-long positions once again last week. Upside positions has been steadily paired over recent weeks, reflected in the continuing weakness we’ve seen in oil prices. Crude futures are currently down around 27% from their YTD highs with price now retesting the 95.93 level following the failure at 129.78.
China Concerns Mount
Prices have come under pressure recently as concerns mount over the widening lockdowns in China. The world’s second-largest economy has reintroduced regional lockdowns in response to soaring COVID rates, leading to expectations of reduced demand. Additionally, there are growing concerns over the impact that surging inflation will have on economic growth going forward, in the US and elsewhere around the globe, raising further question over longer term demand for oil.
Historic, Coordinated SPR Release
Oil prices have come under further pressure this week following news that the International Energy Agency plans to release 60 million barrels of emergency oil. This announcement comes on the back of the US announcing a much larger 180-million-barrel release, aimed at bringing oil prices back under control. This marks the largest release from the US SPR and comes alongside increased calls for domestic oil companies to accelerate their drilling operations in a bid to lift output. Alongside the US release, around 31 countries in the IEA have committed to the co-ordinated release of a further 60 million barrels over the next six months.
EIA Reports Surprise Surplus
The latest report from the Energy Information Administration this week has also contributed to the bearish tone in oil markets. The EIA reported a surplus of 2.4 million barrels last week, this was in stark contrast to the -2.9 million barrel drawdown forecast and marks a sharp reversal from the prior week’s 3.4 million barrel draw.
Bearish Risks But Don't Rule Out Further Upside
These recent developments within the supply/demand environment, concerns over demand from China, along with news of historic co-ordinated oil releases, means that the near-term outlook for oil looks vulnerable to further downside. However, there are still clear upside risks around the conflict in Ukraine. With violence having escalated recently and with peace talks yet to produce a deal, any further escalation in violence would likely produce upside shocks in oil prices though, with how backed in the conflict has become now, it would likely take a significant escalation to cause a meaningful upside move.
Technical Views
Crude Oil
Crude prices are now testing below the recent contracting triangle pattern and back inside the broken bull channel. For now, the move still appears corrective and, while 95.93 holds, further upside remains in focus. Below there, however, 83.75is the next big support to note with the bull channel low coming in just beneath.
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.