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Oil Traders Increase Longs 

The latest CFTC COT institutional positioning report shows that oil traders increased their net longs last week, taking the total upside position to 181k contracts from the prior 154k contracts. This jump in bullish positioning comes on the back of 5 weeks of reductions in upside exposure which saw the total long position paired from around 249k contracts to the recent 154k lows. Given the surge In bullish bets last week and the recent strength we’ve seen in oil prices, there is a growing case for calling a bottom in oil prices.
 

OPEC Slashes Output 

The main driver behind the upside move in oil prices this week was the surprise announcement from OPEC+. The group announced fresh products totaling 1.16 million barrels per day. The move saw oil prices jumping by 8% in a day, marking their largest daily gain in over a year. Additionally, the group noted plans to action further production cuts going forward citing concerns over falling prices. In total, OPEC+ has now cut daily oil supply by around 3.6 million barrels since October last year, equal to roughly 3.7% of global demand.
 

US Pushes Back Against Cuts 

The US administration has voiced its opposition to the cuts, which it said it was given prior warning over. Rising energy prices were a major source of economic strain over the last year and there are fears now of a fresh move higher in oil prices on the back of the move. The inflationary risk of a fresh move higher in oil prices will certainly be of grave concern to central banks which are still grappling with elevated inflation.
 

EIA Records Inventories Drop 

OPEC+ cited falling global demand as the main driver behind its decision to slash output in a bid to stop prices from falling further. Rising inventory levels in the US over recent months have been a strong indicator of the drop in demand cited by OPEC. The latest data from the EIA this week has added to upside pressure on oil prices. The EIA recorded a 3.7 million barrel drop in oil inventories, below the 1.6 million barrel deficit the market was looking for. Looking ahead, oil prices look poised for further gains on the back of the OPEC announcement, particularly in light of the guidance that further cuts are likely coming.
 

Technical Views

Crude Oil

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The rally in oil prices this week has seen the market breaking out above the 76.49 level. Price is now testing the 81.40 level which is a major resistance level for the market. A breakout here will be firmly bullish for crude prices, opening the way for a fresh run up towards the 85.96 level next and 93.47 longer term, in line with bullish momentum studies readings. 

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