Oil Traders Increase Longs

The latest CFTC COT institutional positioning report shows that WTI traders increased their net long positions last week by a further 7,179 contracts, taking the total position to 519,019 contracts. This latest increase comes amidst the ongoing rally in oil prices which has seen benchmark crude prices breaking out to three-year highs.

OPEC+ Maintains Production Cuts

Oil prices have been boosted recently by the OPEC+ decision to maintain the current supply cuts in place for at least another month. The cartel and a group of allied, non-OPEC producers led by Russia, made the agreement in light of the current recovery underway around the world and to help see oil prices through until larger re-openings begin in the West which should keep price supported through better demand. Along with the agreed upon cuts, the group’s de-facto leader Saudi Arabia agreed to keep its voluntary 1 million barre-per-day cuts in place also. In all, it was a firmly bullish meeting for oil prices, helping further the 2021 rally underway.

EIA Reports Another Large Drawdown

Despite the positive input from OPEC+, the breakout this week found selling pressure, affecting a mid-week reversal, most likely on profit taking as the market hit a key technical level. The EIA also offered some downside pressure this week with its latest update showing that US crude stores rose by almost 14 million barrels last week. This means that with the prior week combined, crude levels are up almost 40 million barrels in two weeks. The rise is mostly linked to the disruption caused to refineries from the storms in the gulf region, however, and should return to normal over the coming weeks. Additionally, news of another drawdown in gasoline stores was well received by traders, reflecting better demand from US drivers and transporters.

Demand & Production Both To Rise This Year

The EIA released its 2021 Energy Outlook this week in which it now forecasts production over the year to be slightly higher than previously expected. Production was confirmed to be the lowest on record over 2020 as a result of the pandemic but is now bouncing back with US rig counts up to their highest levels since last May. Along with higher production, the EIA is also forecasting better demand over the year as a result of the reopenings planned around the world.

Technical Views

WTI

The correction below the 65.71 level this week found support into the retest of 63.43, With price still trading above the rising trend line from November lows, the bias remains bullish here though momentum studies are flagging bearish divergence. Below 63.43 any dip lower should find support into the 61.60 level and rising trend line.

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