Oil Traders Reduce Longs
The CFTC COT institutional positioning report shows that traders reduced their net long positions in WTI markets last week by 16,307 contracts, taking the total position to 532569 contracts. This latest adjustment in positioning reflects the loss of upside momentum in oil markets over recent trading as growing negative risks emerge.
The prospect of a second wave of the COVID-19 virus has become more of a reality over recent weeks as the number of new infections, as well as the number of deaths, has been seen steadily increasing across many countries. In the US, the daily death toll has moved back firmly above 1000, leading to many states their reintroducing lockdown measures or, at the least, postponing reopening plans. In Europe, Spain has reintroduced lockdowns in several areas, as has England, while Germany and France have both warned that the situation is extremely precarious. Australia has already moved to reimpose lockdown on its biggest city, Melbourne with warnings that the capital, Sydney, might also need to be quarantined if the virus spreads.
Oil demand was decimated during the height of the pandemic and traders are now clearly fearing another hit to demand. Even if nationwide lockdowns are not reintroduced, travel restrictions between countries will cause a further downturn in fuel demand from the aviation sector. Furthermore, as we are seeing in the US, motor oil demand will be heavily impacted by local lockdowns as more countries are forced to employ measures to curb a second outbreak of the virus.
OPEC Downgrades Demand Outlook
OPEC this week updated its outlook for the global oil market and now forecasts a fall in global oil demand of 8.9 million barrels per day over 2020. OPEC began easing out of the production cuts which have run since the start of the year this week, despite earlier expectations that the restrictions might be extended. Given the renewed concerns over the potential for further downside demand shocks from the pandemic, there are fears that easing of restrictions will impact oil prices lower.
EIA Reports Further Inventories Decline
The EIA reported a heavy decline in US oil stores last week, which fell by over 7 million barrels. While the data was encouraging, marking a continuation from the prior week’s 10 million-barrel decline, news of a further build in US gasoline stores has dampened by the market reaction to the report.
Technical Views
WTI (Bullish above 41.35)
From a technical viewpoint. Since breaking down below the bullish channel in mid-June, oil prices have lost all volatility and momentum, with price straddling the 41.35 level over recent weeks. With price remaining just above the 50dma, the outlook remains bullish here. However, bearish divergence in momentum studies opens the risk for a reversal lower which, if seen, will turn attention to the 29.14 level next.
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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.
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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.
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