The latest CFTC COT positioning report showed that net long positions in WTI crude were reduced by 43,097 contracts last week taking the total position to 388,369 contracts. It is safe to say that this reduction will have no doubt been amplified over recent days in light of the developments we have seen.
COVID-19 Recession Fears
The COVID-19 spread is intensifying globally and raising serious concerns of an imminent global recession. The WHO has now declared the virus a global “pandemic” as countries around the world outline plans for quarantine, lockdowns and travel restrictions. President Trump announced this week that all European travel (besides passengers coming from the UK and Ireland) will be banned from entering the US for the next 30 days.
This latest wave of travel restrictions, which comes on the back of many airlines announcing heavily reduced services, is putting further emphasis on the concerning outlook for global WTI demand. The massively reduced global travel environment of recent weeks, which now looks set to grow in scale, has pulled WTI prices heavily lower.
OPEC Deal in Jeopardy
There were hopes last week of some recovery in WTI levels as OPEC announced that it was planning to further cut production levels by another 1.5 million barrels per day through Q2. However, with Russia (and its group of allied non-OPEC nations) refraining from joining the agreement, talks broke down. Over the weekend, Saudi Arabia announced its plans to dramatically increase oil production in retaliation for Russia not joining the deal. With global oil demand cratering, such an increase in supply could be catastrophic for oil prices. Whether the threat of this action proves incentive enough for Russia to reconsider its position, has yet to be seen.
EIA Cuts Demand Forecasts
The EIA added further bad news for WTI bulls this week, reporting another US inventories gain of 7.7 million barrels last week. Along with the inventories data, the EIA also updates its energy market outlook, which now includes severe downward revisions to global oil demand over the remainder of the year as a result of COVID-19. The downgrades come on the back of similar projections from OPEC last week and reflect the darkening outlook for WTI prices from here.
Technical Views
WTI (Bearish below 42.39 )
From a technical viewpoint, the sell off in WTI has taken price right back to near the 2016 lows of $26. Having moved from highs above $64 at the start of the year, price has come along way lower in a short timeframe and there is room for some consolidation now. However, with the fundamental backdrop still highly volatile, further losses cannot be ruled out unless we see a recovery back above the 42.39 level.
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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.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!