Oil Traders Increase Longs
The latest CFTC COT institutional positioning report shows that oil traders increased their net long positions last week from 249k to 254k contracts. Despite the increase, upside bets are still just below their recent October peak around 259k and this week we’ve seen price action turning heavily lower, suggesting that next week’s data will show some scaling back of long positions.
Tough Time For Oil Traders
It’s been a tricky period for oil markets recently and traders are yet to get a strong directional grasp on the market. Duelling market forces are creating plenty of two-way action in crude prices, but little in the way of a trend. This week’s failure to break above the October highs, instead fuelling a reversal lower, will no doubt be disappointing to bulls, prolonging the sideways action we’ve seen over recent months.
US Midterms Impact
This week, uncertainty around the US midterms elections has been a major driver behind the shift lower in oil prices. The so-called ‘red wave’ which many had forecast has failed to materialise and with the democrats losing just 7 seats so far, the oil industry is unlikely to face an easier regulatory and tax environment, which it had hoped would materialise under large republican gains.
China Reopening Uncertainty
Additionally, uncertainty around China reopening is also weighing on oil sentiment. At the end of last week, a story was doing the rounds linked to an alleged leaked memo which highlighted China reopening operations were underway, targeting a March 2023 reversal of covid restrictions. However, Chinese authorities were quick to push back against the story, denying its authenticity and reaffirming their commitment to zero COVID. With fears of future lockdowns under the current policy, China demand fears have returned, weighing on the demand outlook for oil in the world’s second largest economy.
Huge EIA Inventories Surplus
The latest report from the Energy Information Administration this week did little for crude bulls. The EIA reported a huge 3.9 million barrel surplus in crude inventories last week, well above the 0.3 million surplus forecast. The build was a stark shift from the prior week’s almost 4 million barrel decline. Looking ahead, the EIA slashed its production forecasts for next year by around 20%, citing inflation and supply chain issues as the key hurdles for refiners.
Technical Views
Crude Oil
The recent rally failed into a test of 93.32 October highs, with price since turning lower. The market is now testing the support area around the 85.53 level, this is a key zone for the market and if price can hold here, the focus remains on further upside and a break of the October highs, targeting 103.80 above. Should price slip back below current support, however, focus turns back to the 79.21 level as next support.
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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.