Speculators Exiting long Crude Positions As Sentiment Turn
Axi | Mar 20, 2017 10:46
Originally published by AxiTrader h2 Key Takeaway/h2
CFTC data released Friday revealed that accounts it classifies as large speculators fell 74,725 in the week to last Tuesday. That's a reduction of net long positions of just under 15% in a one-week period.
It's the lowest level since early January and net longs are now roughly 123,000 - 22% - from the record net long high that oil traders had in place just a few week's ago.
This position of unwinding is both a cause and reflection of the big fall in crude oil prices in the wake of the CERAWeek oil industry conference in Houston when the cracks in the OPEC/non-OPEC deal emerged and when it seems like it became evident shale oil is back and the new swing player.
It's all lead to some interesting price action. The big question is what's next.
h2 What You Need To Know/h2Last week in the wake of crude oil's fall and the price of WTI making a low in the $47.07/10 region I wrote a piece wondering if "the low for crude (was) now in".
It was a technical question based on the stretched nature of the Bollinger bands, the low which satisfied the 38.2% retracement of the November 2016 to 2017 rally, and it was based on the markets reaction to the small draw on inventories reported by the API.
Since then prices for WTI rose to a high around $49.62 which is just shy of the 38.2% retracement of the fall to last week's low.
But with Friday's close of $48.78 for WTI oil prices have so far been unable to break back up and through the old trendline from the lows of 2016 - which it broke down through recently and which looks like is now offering resistance.
Believe it or not, my system will take a long if prices move above $49.75. But the broader question of what's next for oil is an interesting one.
Last week saw a confluence of fundamental information which argues for a continued unwind of oil price gains in the short term.
Of note beside the fact that both the API and EIA data showed draws on inventories - which helped prices bounce from the lows - the Saudi oil minister al-Falih said the deal to reduce production may be extended after all.
But for what seems like the first time since the disappointment that there was no OPEC production cut deal in the middle of 2016 attempts by the Saudis, and other OPEC members, to jawbone crude oil prices higher seemed to fail.
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Fail might be too strong a word because there was certainly some price response. But it was more muted than what we have seen over the past 6 months or so when comments like these were often associated with stronger bounces.
In no small part that's likely to be a result of the changed conversation about supply and demand going forward as crude oil stock piles take longer to react to the production cut than OPEC hoped. No doubt that's both fuelled the Saudi oil minister's comment and the markets benign reaction to it.
Another reason markets didn't rally too far and are still respecting overhead resistance is the continued net long traders are holding as a result of the deal agreed last year.
Certainly in the week till last Tuesday there was a massive liquidation of almost 15% of net longs. That helps explain the fall. But that only brought the total net long for large speculators back to where it was in early January.
That would still be in record territory if it weren't for the last 12 week's bullishness and expectation.
So with the Baker Hughes rig count in the US climbing for the 9th week in a row to 631 and with questions remaining over the efficacy of the OPEC/non-OPEC deal to achieve its stated aim of bringing inventory levels down a long market remains a hand brake on sustainable gains.
Certainly the Saudi oil minister may decide to get his group to cut harder and for longer - they have an Aramco IPO to get away after all - but unless or until he does that it seems oil - both WTI and Brent retains a downside bias.
The key levels I'm watching at $46.65 and $50.20/50 on the topside and $46.90/47.00 on the downside.
Here's the 4-hour chart for a closer look.
Have a great day's trading.
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