Oil Traders Cut Longs Again
The latest CFTC COT institutional positioning report shows that oil traders cut their positions again last week. Total upside exposure was trimmed from 224k contracts to 219k contracts, marking the third consecutive reduction in bullish exposure. The positioning adjustment has been well aligned with price action given the slide we’ve seen over the last week. Crude futures have fallen almost 20% from March highs, hitting levels not seen since late 2021.
Risk Aversion Hurting Demand
The main catalyst behind the recent declines has been the heavy wave of risk aversion we’ve seen sweeping across markets. The collapse of SVB last week has triggered a swift global response with banking stocks, broader equities indices and indeed risk assets as a whole coming under heavy selling pressure as traders look to move capital into defensive positions.
OPEC Cites Uncertainty
Interestingly, while OPEC was seen revising its demand outlook for China higher this year, downgrades were made in the US and Europe. OPEC noted that recent market turmoil risked spilling over into a fresh financial crisis which might heavily impair demand levels as recession risks rise through the year. With contagion fears weighing heavily on markets, downside volatility in risk assets has ballooned over the last week, clearly visible in the price declines we’ve seen in oil.
Demand Concerns
The demand outlook has been a major sticking point for oil traders this year. Fears of recession in the US and Europe have acted as a counterweight to the more optimistic outlook in China post-reopening. While recession fears in the US looked to have decreased over February, in line with better US economic data, fears have returned tenfold in the wake of recent developments within the banking sector.
EIA Inventories Surplus
Demand fears were underscored again this week by the latest update from the EIA. The EIA reported an unexpected 1.6 million barrel inventories surplus, in stark contrast to the deficit projected. With US production still at elevated levels and domestic demand still weak, inventories look vulnerable to further surpluses, keeping oil prices pressured. Looking ahead, the main driver for oil will continue to be the global risk backdrop which suggests that lower prices are the most likely path for now.
Technical Views
Crude Oil
The break of the 72.61 level support has seen the market trading down to lows of 66.97. Though this area is holding for now, while price remains below the 72.61 level, the focus is on a continuation lower with 62.23 the next support to note.
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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.