Oil Traders Add To Longs

The latest CFTC COT institutional positioning report showed that WTI traders increased their net long positions in crude last week by a further 18,419 contracts, taking the total position back up to 537,438 contracts. Crude oil upside positioning has been steadily increasing this year though remains down from the 589,388 contract highs seen last year, suggesting there is further room to the upside for oil.

Vaccine Optimism & OPEC Supporting

The ongoing uptick in long exposure reflects the growing improvement in the outlook for oil as traders increasingly focus on the economic recovery. With the global reflation trade gathering pace as we near Q2, the easing of social restrictions and lockdowns is expected to further boost demand for oil. Price has also been underpinned by the recent OPEC+ decision to keep current supply restriction sin place until the end of April at the earliest. This should help smooth the transition back into better demand conditions before OPEC+ begins easing out of the supply cuts which have been in place across the pandemic.

Bearish EIA Report

Despite broadly bullish sentiment for oil prices, the market was hit yesterday by a bearish report from the EIA. The group reported that US crude inventories were seen rising again last week by a further 2.4 million barrels, marking a third consecutive week of inventories gains. Additionally, gasoline and distillate stockpiles were also seen in surplus. This fuelled a spate of profit taking in oil which has seen price reversing into the back end of the week, extending the losses already being driven by a stronger US Dollar.

USD Upside Blocking Oil Rally

The Dollar received a boost this week from the March FOMC meeting which saw the Fed significantly upgrading its economic forecasts. The Fed now sees GDP and inflation both increasing at a faster pace than previously projected over the next year with the unemployment rate to fall further. While most members seen rates on hold until 2023, more members now forecast a 2022 rate hike than did in December, reflecting a hawkish shift which should keep USD underpinned in the near term. Depending on the moves seen in the Dollar over coming weeks, the oil correction might develop further in the short term.

Technical Views

WTI

The upside move in crude has found selling pressure into the 67.50 region, capping the rally for now. However, with 63.43 acting as support and the bullish trend line still in play, the near term view remains bullish. Should we see a break of the trend line, however, the 61.69 level is the next support to note with 58.48 coming in below that.

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