Oil Traders Increase Longs… Slightly

 The latest CFTC COT institutional positioning report shows that oil traders increased their net long positions in oil last week. Total upside exposure was raised to 217k contracts from 215k contracts prior. The muted change has been reflected in the choppy price action we’ve seen recently in crude futures. While up of the year’s lows, price is still down slightly from last week’s recovery highs, sitting in the upper portion of the range between the two levels.

 Debt Ceiling Impact

 Crude prices were seen firmly higher yesterday amidst the broad uptick in risk appetite linked to fresh optimism around US debt ceiling negotiations. Both Biden and McCarthy expressed optimism yesterday that a deal can be done in time, leading to a surge in risk appetite. Indeed, the move higher in risk assets comes despite a recent hawkish shift in Fed sentiment.

 Fed Chatter Impacting USD

 Several Fed members have been heard pushing back against rate cut calls recently leading to a scaling back of rate cut pricing later in the year. Pricing for the June meeting has also seen a higher chance of a further rate hike prices in (now sitting around 30%). For now, however, the bigger focus appears to be on debt ceiling developments. Should optimism around a deal continue to build, risk assets (including oil prices) should continue higher near term. If a deal is then done avoiding a default, this will be firmly bullish.

 China Data on Watch

 Away from developments in the US, oil traders are also keeping a close eye on China. Weaker data recently has raised fresh concerns over the health of the economic recovery there which is weighing on the oil demand outlook. While this continues to be the case, upside is likely to be limited. However, should we start to see a bullish turn in China data this should help lift oil prices quickly.

 Huge EIA Surplus Reported

 Finally, in its latest update this week, the EIA reported a large and unexpected 5-million-barrel surplus. This was in stark contrast to the 1.5-million-barrel deficit expected. The increase, however, was linked to another release from the US SPR. Gasoline stocks. Meanwhile, were seen falling further as demand hit its highest levels since 2021 in an encouraging sign ahead of the US driving season.

 Technical Views

 Crude

 The rally off the YTD lows has seen the market breaking back above the 66.97 level with price now once again trying to get back above 72.61. Momentum studies are turning bullish, signalling a further push higher. However, the key level to watch will be the 76.49 area and bear channel top. A break here will be firmly bullish.