Oil Traders Reduce Longs
The latest CFTC COT institutional positioning report shows that oil traders reduced their upside exposure last week by 3,452 contracts. With this modest reduction, crude upside positions are now sitting at 495,561 contracts in total. The scaling back of upside bets comes midst a general softening of risk appetite over the last week with equities, commodities and other high yielders as inflation expectations continue to rise.
Inflation Expectations Hurting Oil
In the US and the UK, inflation has soared over the last month, adding to the view that consumer prices are likely to experience a surge over the coming months as reopening progresses. In Europe, inflation has been a little softer due to the extended lockdowns and slower vaccine rollout. However, with vaccination number starting to pick up, the near-term outlook looks positive, meaning that inflationary pressure is likely to be building there also.
The re-opening underway around parts of the words is a double-edged sword for oil. While the return of broader travel is certainly a positive for oil, boosting demand, the prospect of higher inflation is a headwind to higher prices here as the likelihood of central banks stepping away from their massive easing programs increases.
US Dollar Weak, For Now
While US inflation expectations have been rising, the US Dollar has been largely subdued, still hovering around 3-month lows for now. In the near term, while the Dollar stays weak, oil prices are likely to be underpinned. However, if the Dollar starts to gain traction and build a reversal higher, this is going to be a big accelerant for the current oil decline and is certainly worth keeping an eye on.
EIA Reports Further Inventories Build
The Energy Information Administration did little to help the crude bulls this week. The EIA reported a 1.3 million barrel rise in crude inventories. While this increase was a little lower than the 1.5 million barrel surplus the market was looking for, given the general risk off tone in markets currently, it was enough to push oil over the edge. Additionally, gasoline inventories were seen higher by 2 million barrels, in stark contrast to the 900k barrel decline the market was looking for.
Technical Views
Crude Oil
As per yesterday’s Market Spotlight, crude has broken below the local rising channel and is now on course to test the 60.55 support next. While this level holds, there is still room for a continuation higher. Below, there the next area to watch is the test of the rising long term channel ahead of the 57.24 level next.
Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 65% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
Past performance is not indicative of future results.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 75% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Futures and Options: Trading futures and options on margin carries a high degree of risk and may result in losses exceeding your initial investment. These products are not suitable for all investors. Ensure you fully understand the risks and take appropriate care to manage your risk.
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.