Summary:
- Oil edges to 2-week high above $65
- Latest COT data shows long positions trimmed but remain elevated
- A longer term S-H-S formation could be developing
A recovery in risk appetite for stocks last week also helped the price of Oil with Brent crude snapping a 2-week losing streak and holding above prior support around 61.10. Today’s trade has seen further gains for the benchmark and the market has moved back above the $65 a barrel handle to hit its highest level in a fortnight.
Brent Oil has risen to a 2-week high today and is now probing prior resistance around 65.50. Source: xStation
The most recent positioning data from the CFTC shows that the number of longs in the market have been trimmed a little, but they still remain elevated by historical standards. The latest release shows a decline of 32,054 lots in the net position for Brent but this still leaves the overall net position at 542,935 compared to the 3-year average of 330,00. This represents a long/short ratio of 15.8 and remains at 93% compared to the 1 year max.
Long positons have been trimmed a little of late but they still remain high by historical standards. Source: CFTC, Bloomberg and Saxo Bank
Despite the recent recovery in the market the longer term picture remains not so positive with US production ramping up once more. The US oil rig count on Friday showed another increase (+7) to move to its highest level since April 2015 and it also marked the first time since June that rig have risen for 4 consecutive weeks.
Looking at a D1 chart a possible head and shoulders formation could be forming with the head taken at the recent high of 70.78. The first shoulder would be around the 65 level at the end of last year and any reversal in the current region could be seen to carve out the second shoulder. The neckline for this possible setup is around 61.21 and should this be broken below then the formation would be in play. The target for such a setup would be around 51.70.
A larger S-H-S formation may be developing in the market with price currently in the region where a potential second shoulder may lie. Source: xStation