The Crude Chronicles – Episode 45

<h2>Oil Demand Outlook Improving</h2>
<p>The CFTC COT positioning report shows that institutional traders increased their net long positions in WTI last week by 14,611 contracts. This latest round of buying brought the total position up to 560,883 positions and reflects the better sentiment seen in oil markets recently as the easing of lockdown measures lifts demand expectations.</p>
<p>Despite the buying last week, oil prices have been unable to make a move to fresh highs this week. The fundamental backdrop remains broadly positive but with clear downside risks. The main story over the last week has been the emergence of fresh COVID-19 fears. The reporting of renewed upward trend in new infection rates across some US states, including Texas, along with the closure of bars and restaurants in seven California counties, has fuelled fears of a second wave of the virus.</p>
<p>Over recent weeks, the easing of lockdown measures around the US, Asia and Europe has helped lift demand and activity. Manufacturing data has been steadily improving, encouraging the view of a slow but steady recovery which, boosted by the OPEC+ production cuts, has helped fuel a recovery rally in WTI.</p>
<h2>Second Wave Fears Pose Risks</h2>
<p>However, upside impetus has been somewhat stifled amidst these fresh COVID-19 fears over the last week. Equities markets suffered a downside shock as fresh reports emerged, highlighting the situation. Along with the uptick in new US cases, there have also been regional breakouts in China and Australia along with a violent explosion in infection numbers in Brazil and India.</p>
<p>The oil market is now at something of a crossroads. With the aviation sector expected to see a sharp increase in activity from July as Eurozone and UK travel restrictions ease, the demand outlook for WTI has increased. However, with the return of travel also comes the risk of a further spreading of the virus. If new infection rates continue to trend higher and begin to trend higher again in the UK and Eurozone, this could (in a worst-case scenario) lead to stay-at-home orders being reintroduced which would be disastrous for WTI demand.</p>
<h2>EIA Reports Large Inventories Decline</h2>
<p>The latest update from the Energy Information Administration reflected better demand over the last week, as activity begins to increase further. WTI inventories in the US fell by over 7 million barrels in the week, far outstripping estimates for a 2.7 million barrel decline. This decrease also marks the first inventories decline in a month and has offered further support for WTI prices here.</p>
<h2>Technical Views</h2>
<p><strong>WTI (Bullish above $38.36)</strong></p>
<p>From a technical viewpoint. Oil prices continue to move in an ascending triangle pattern, held up by resistance at the $41.35 level. While prices remain above both VWAP and the monthly pivot ($38.36), keeping the outlook bullish, momentum studies are flagging strong bearish divergence, highlighting reversal risks. A break below the pivot could see a correction lower to test the monthly S and June swing lows around $35.</p>
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