Oil Traders Cut Longs Last Week

The latest CFTC COT institutional positioning report shows that oil traders reduced their net long positions last week. Total upside exposure was cut to 252k contracts from around 273k contracts prior. The downward reduction reflects a renewed sense of caution in the market amidst news of fresh lockdowns in China which were seen hurting the demand outlook for oil and commodities.

China Protests Subside 

At the start of the week, oil prices were knocked lower as news of protests and violent clashes across China added further concern to the outlook there. Protestors took to the streets in the biggest show of civil disobedience since the Tiananmen square protests in 1989. Protests and clashes lasted several days before calming into the end of the week as restrictions were lifted in some areas, raising hopes of a forthcoming shift in the government’s zero covid policy.

Weaker USD Lifts Oil

Across the week, crude prices have also been helped by weakness in the US Dollar. USD has been on the decline recently with traders eagerly looking to pick a top in anticipation of a shift in Fed strategy on rates. On Wednesday, fed chairman Powell confirmed that such a shift will likely take place at the December meeting. Powell’s comments sent USD tumbling lower still, helping bolster oil prices and risk markets in general.

 OPEC Meeting In Focus

Looking ahead, the key focus for oil markets now will be the upcoming OPEC+ meeting on Sunday. There has been plenty of speculation over whether the group will announce fresh measures. Last week, rumours of a potential production hike sent prices tumbling before they reversed higher as OPEC denied the comments.

Indeed, with prices still near lows it would seem the risks are more likely skewed to the upside. If OPEC refrains from any action at the meeting, oil prices will stay tied to USD flows and incoming China news which should keep a mild positive bias under prices. However, any surprise further reduction in output would help firmly lift oil prices near-term.

Technical Views

Crude Oil

The rally off the lows in oil sets up a potential double bottom against the 76.49 lows printed in September. With momentum studies turning higher, there is room for a continued reversal north if bulls can get back above the current 81.40 resistance. Above there, 85.53 is the key level to watch, opening the way for a higher run towards 93.32 if broken.