Summary:
- DOE inventories -6.5M vs -3.6M expected
- OPEC, non-OPEC compliance at 122% in November
- Oil remains close to 2017 peak
The weekly DOE inventories have shown another large drawdown, with the latest release making it now 3 substantial declines in a row. The drop of 6.5M was larger than the -3.6M expected and also below the prior reading of 5.1M. The reading was also lower than the API number last night which came in at -5.2M. US stockpiles have been in a steady state of decline for quite some time now after they reached their highest levels since 2012 in Q1. On a year-by-year basis 2017 is now below both 2016 and 2015 at this comparative point in time.
US inventories showed another large decline in the latest DOE release. Source: XTB Macrobond
Another good piece of news for oil bulls came in the form of an announcement earlier this afternoon that OPEC and non-OPEC compliance in November was at 122%. The Kuwait oil minister made the estimate and if it is to be believed it represents the highest level since the production cuts were introduced.
However, there are some warning signs in the market that further gains could be hard to come by. The biggest is arguably the current level of positioning in the Oil.WTI market which is extremely long by historical standards. The latest CFTC data shows a net position of 610k contracts which is the highest in a decade. Previous times when the positioning was extremely long such as back in 2014 have preceded price drops.
Net speculative positioning in Oil.WTI is close to its longest in the past decade. This can be seen as a contrarian indicator that suggests lower prices ahead. Source: Bloomberg
The market reaction to the DOE release has seen Oil.WTI move higher with the market currently trading near its highest level of the week and not far from its 2017 peak. The 59 level is an obvious place to look for possible resistance and as long as price remains below there a pullback may occur. The 23.6% fib retracement at 55.03 and 38.2% at 52.58 could be seen as possible targets for shorts.
Oil.WTI remains close to its 2017 high but the positioning data could be seen to suggest it is susceptible to a pullback. Fib retracements of the rally from the summer low could provide targets for shorts. Source: xStation