Oil Traders Increase Longs

The latest CFTC COT institutional positioning report shows that oil traders increased their net long positions once again last week. Total upside exposure rose to around 278k contracts from around 274k contracts prior, marking the fourth consecutive week of bullish positioning growth. Sadly, for those who added to upside bets last week, oil prices have failed to turn higher and over the course of a volatile week, oil prices have headed south.

OPEC Volatility

The week got off to a heavy start with crude futures falling sharply lower, breaking through the September lows to hit their lowest level since January. The move was in response to a WSJ article citing a leaked OPEC+ memo regarding plans for a fresh 500k barrel a day production hike to be announced at the next meeting. However, oil prices reversed from the lows just as quickly as Saudi Arabia, the group’s de-facto leader, publicly denounced the story saying that there were no such plans in place.

China Lockdown News

Following some rebound action into the middle of the week, crude prices were then turned lower again on news of fresh lockdowns in China. The stay-at-home measures have returned in Zhengzhou where 6.6 million residents have been ordered to remain at home for the next five days while authorities carry out mass testing. However, with covid cases hitting their highest level since the 2 month lockdowns were announced earlier this year, fears of broader measures are hurting demand expectations for oil, weighing on prices.

EIA Inventories

Indeed, fears over fresh lockdowns in China are overtaking the weakness we’re seeing in USD, which typically helps lift oil prices, as well as a bullish report from the Energy Information Administration yesterday. The EIA reported a 3.7 million barrel inventory decline, well beyond the 2.6 million barrel deficit the market was looking for. On the back of the prior week’s almost 6 million barrel decline, the data shows that demand is still growing. However, the drop in headline crude stores was overshadowed by the further rise in gasoline and distillate stockpiles.

Technical Views

Crude Oil

The sell off below the 85.53 level has seen the market advancing quickly lower with price now testing the rising trend line and support at the 76.49 level. With momentum studies bearish, risks of a further break lower are high here with 73.16 the next support to note ahead of the much deeper level at 66.97.