Oil Traders Increased Longs Last Week

The latest CFTC COT institutional positioning report showed that WTI traders increased their net long positions in oil last week by a further 17551 contracts. This latest increase takes the total position back up to 490348 contracts, marking a fresh two month high.

COVID Second Wave Fears Leaning on Crude

Last week’s increase in upside exposure will likely have seen some new entrants to the market caught offside given the pull-back we have seen in oil prices this week. WTI has dropped a further 7% this week, now down over 12% from the October highs. The primary catalyst behind the move has been the dramatic uptick in COVID second wave fears

The US, UK and many countries across Europe are now caught firmly in the grip of an accelerating second wave. Infections are now well above the levels seen during the first wave, with many countries noting a 300% increase in daily new infections. Meanwhile, over the last week specifically, the death toll in many European countries has now started to move back up to levels not seen since during wave one.

In response to the resurgence of the virus, France has initiated a new, one-month nationwide lockdown, Italy looks to be on the verge of doing so also, Spain has declared a national state of emergency and in the UK, the PM is under pressure to announce a nationwide lockdown.

The situation is incredibly concerning and has a sparked a wave of risk-off action this week with equities markets and risk assets tumbling across the board while USD has attracted a strong safe haven bid, creating further pressure on oil prices.

EIA Reports New Inventories Surplus

OPEC has recently cited the resurgence of the virus as a key threat to the oil demand outlook for both this year and next, having reduced its forecasts across the full horizon. In its latest weekly update delivered yesterday, the EIA confirmed a fresh build in US WTI inventories last week. Overall crude levels were seen rising by nearly 5 million barrels, well above the 1.5-million-barrel increase expected, firmly reflecting a drop-in demand.

Technical Views

WTI

From a technical viewpoint. The sell-off in crude prices this week has seen price trading back down to retest the broken bearish trend line, with price having now moved back below the trend line. The main price pivot to watch here is the $36.10 support, this has underpinned oil since June and a break lower here would create room for a much deeper correction towards the $29.14 region. To the topside, bulls need to see a break back above $41.35 to alleviate bearish pressure.

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.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 72% 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.