Corona-Virus Driving WTI Lower
The CFTC COT positioning report showed that net long positions in WTI benchmarks were reduced by 9,744 contracts last week, taking the total position to 520,568 contracts. WTI prices have seen concentrated selling over the last three – four weeks as a number of factors have fuelled a shift in perspective for WTI traders.
The escalation in tensions between the US and Iran, which caused WTI to spike above the $64 level, quickly fizzled out. As tensions cooled, so too did trader expectations of any supply disruption, causing a sharp reversal lower in WTI prices.
The rally in the Dollar over that period also helped add weight to the sell-off. With some key readings coming in stronger than expected, the Dollar recovered and the subsequent higher prices leaned on WTI.
In the aftermath of the US-Iran situation, WTI prices soon found a new focus point. News of the outbreak of a SARS-type virus in China (corona-virus), two weeks ago, saw a sharp rise in investor uncertainty. With the virus still spreading around the globe and the death toll rising, the risk-off impact in markets is growing as equities and commodities prices continue to come off.
The outbreak of the virus comes at a very challenging time for the global economy. The two-year long trade war between the US and China has seen global growth falling to its lowest levels since the GFC and leaned heavily on WTI demand. At a time when US WTI production continues to balloon, another weakening factor for demand could be very dangerous or WTI, reflected in the more than $10 decline we have seen over the last four weeks.
EIA Reports Large Inventories Build
The EIA reported a large build in US WTI inventory levels last week, which increased by 3.5 million barrels. The main driver behind the larger-than-expected build was a sharp drop in refinery crude runs. Utilisation rates dropped a further 3.3% last week to just 87.2% of total capacity. The report also noted a drop in demand last week of 4.4% compared with the same period last year.
Technical View
Crude Oil (Bearish below $57.30)
From a technical viewpoint. The continued sell off in WTI has seen price move sharply below the yearly pivot at $57.30 and also VWAP which has now turned negative. Price has now completed the symmetry objective at $52 and unless bulls quickly see a reversal back above the broken trend line, a move lower to $50.50 support, then the yearly S1 at $48 can be seen.
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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.
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.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!