Both oil contracts have bounced back a little after Thursday’s sharp plunge. The all-time high crude stockpile levels in the US is the number one reason behind oil’s inability to move further higher in recent weeks. With net long positions on both contracts being at record high levels, it could be that money managers and other large speculators are beginning to unwind those positions, providing additional pressure on prices. The latest positioning data from the CFTC tonight and ICE on Monday may reflect this view point. Also, the fact that there were no further cuts in Russian oil production in February means it will take a little bit longer for the global oversupply to drain.
Essentially though, the long-term bearish trend has ended and I still think prices will break further higher later on this year as evidence of a tighter oil market emerges. The key risk to this view is if we see unexpectedly sharp rise in US oil production relative to the demand growth. In such a scenario, oil prices will struggle to get past the current levels. But I still think that around $60-$70 a barrel is where US shale producers will probably ramp up production in a meaningful way again. So, I can’t see oil going much higher than that range for the foreseeable future. But in the short-term, the prospects of further position liquidation from speculators could lead to a correction of some sort. Key long-term support levels for Brent is at $54 and $51 for WTI.