Oil Traders Increase Upside Bets
The latest CFTC COT institutional positioning report shows that oil traders increased their net-long positions in oil last week. Total upside exposure increased to 321k contracts from the prior week’s 310k contracts. Despite the increase in bullish bets it remains a difficult period for crude traders with the market lacking a clear, prevailing directional driver. This week price action has been very flat with the market trading a tight range, well within the confines of the prior week’s action, reflecting the lack of momentum.
EU - Russia Sanctions in Focus
Fluctuating expectations and headlines with regard to the ongoing battle by EU leaders to secure a ban on Russian oil are keeping oil prices hostage for now. So far, there are still countries (such as Hungary and Greece) opposed to an EU-wide ban and, while this remains the case, no deal can be achieved. EU leaders are, however, working on compromises which might help secure the support for these two nations, allowing for a more incremental approach to banning Russian oil. Next week’s EU summit will be an important milestone. If a deal is agreed, this will be firmly bullish for oil prices, putting the focus back on supply concerns. However, if a deal falls through, oil prices will no doubt peel off in the short-term.
US Dollar Impact
Weakness in the US Dollar over the last two weeks has also helped underpin oil prices. However, with the Dollar correction having run out of steam for now, and with yesterday’s hawkish FOMC minutes flagging upside USD risks, a fresh rally in USD might see oil prices turn lower again. The coming US summer driving season is expected to create seasonal demand for oil. However, with how high gasoline prices have risen and with households facing a cost-of-living crisis, the level of demand will likely be lower than previous averages.
EIA Reports Inventories Drawdown
The latest report from the Energy Information Administration this week has helped support oil prices also. The EIA recorded a more than 1-million-barrel drawdown in US commercial crude stocks. While this was less than the 2.2 million barrel drawdown forecast, it shows that demand is still high and extends the prior 3.4 million barrel drawdown from the week before.
Technical Views
Crude Oil
Crude prices have spent the week in a tight block of consolidation between the 108.74 and 114.71 levels. While broadly supported by the rising trend line also, the focus remains on an eventual break higher. However, with momentum studies flat, there are strong two way risks and any break of the rising trend line will put focus on support at 95.93 next.
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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.