Oil Traders Cut Longs

The latest institutional positioning report from the COT shows that crude traders scaled back their long exposure last week. WTI upside bets fell by 5,474 contracts, taking the total long position to 517,165 contracts. The reduction in upside exposure can be attributed to the outcome of the recent OPEC+ meeting where OPEC and a group of allied non-OPEC members led by Russia, agreed to begin increasing supply from January. There had been expectations that current production cuts would be extended, however, following internal disagreements, this was not the case.

Vaccine Impact Fluctuating

Away from the OPEC meeting, the general backdrop for oil markets remains caught between the positive impact from the recent COVID vaccine news, and the downside impact over the current health and economic crisis still in play. While vaccination has begun now in in the UK and is likely to start in the US in coming weeks, the global picture remains very troubled and the vaccination news is doing more for long term prospects over the more immediate outlook.

EIA Reports Record Inventories Surge

Oil prices have been under fresh selling pressure this week as a result of this ongoing tensions between the two market drivers. Supply demand issues have also resurfaced in light of the latest report from the EIA. The EIA reported that US crude store rose by over 15 million barrels last week, despite analyst expectations for a decline in inventories. The rise was the biggest seen in the last 32 weeks and has spooked oil traders in the run up to the end of the year.

While oil prices have been under pressure again, the continued weakness in the US Dollar is helping to offset some of this weakness and is keeping the near term outlook skewed to the upside for oil prices.

Technical Views

WTI

The breakout above the bearish trend line from year to date highs continues to play out. Price has now surpassed the 43.96 highs posted over the summer, which have held as support upon being retested. However, the move has lost momentum and recent price action has begun laboured, reflecting the tension between vaccine optimism and current conditions. Momentum studies are flagging bearish divergence here, which bulls should note. Any break back below the 43.96 level will bring the big 35.79 level back into view with the retest of the broken bearish trend line in the vicinity also.

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