Oil Traders Reduce Longs

The latest CFTC COT institutional positioning report shows that WTI traders reduced their net long positions last week by 18,258 contracts. This latest reduction takes the total position to 472,090 contracts, from the prior week’s 490,348 contracts. This latest reduction comes amidst a backdrop of increasing concern linked to the second wave of COVID-19 and heightened uncertainty ahead of the US elections.

COVID & Elections

Over recent weeks, the amplification in new cases and deaths across the UK and eurozone has led several countries back into full lockdown measures over the next month. With fears that the lockdowns could once again drag on, as they did during the first wave, there has been a resurgence in concerns linked to those sectors hit worst the first time such as manufacturing and aviation. With both these sectors responsible for a great deal of oil demand, the impact on the market has been visible in the reduction in upside positioning.

Fluctuations in the US Dollar ahead of the US elections have also impacted oil. The market had been forecasting a Biden win with the democrats taking both houses. This would likely have been bad for oil given Biden’s preference for moving away from fossil fuels and into green energy. However, with the outcome now looking more tilted towards a Biden win but with a divided government, the chances of any significant overhaul appear slim, which should keep oil prices supported in the near term. With equities markets rallying firmly now as focus shifts back towards the expected fiscal stimulus due in the wake of the elections, the environment should also lend itself towards keeping oil prices underpinned.

EIA Reports Huge Fall In Stockpiles

Away from the US elections and the backdrop of COVID concerns, oil prices have also been driven this week by the latest weekly update from the Energy Information Administration. The EIA continued its recent run of oil drawdowns, reporting an 8 million barrel decline last week. This was a firmly unexpected reading in light of estimates for a 300k barrel rise and has helped drive the oil recovery further higher.

Technical Views

WTI

From a technical viewpoint. The rally in oil prices this week has seen price moving back above the 36.10 level, following a brief jolt below, and also back above the bearish trend line from 2020 highs. While the market holds above the 36.10 region, the preference is for a continuation higher. Bulls will be looking for a break back above the 41.35 level to put the 50.32 resistance back on the radar as a target. Should price reverse lower here, however, the 29.14 level will be the key support to watch in the medium term.

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. 72% 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.