Originally published by AxiTrader
Key Takeaway
Just because a market is very long doesn't mean it will fall.
That's certainly the case given the high level of OPEC and non-OPEC compliance with production cuts during the month of January.
But as longs grow upward momentum is slowing and the risk of a clean out grows
What You Need To Know
OPEC and its oil producing partners outside the cartel are doing something remarkable at the moment. reports via Reuters and other sources suggest a very high level of compliance with the agreed 1.8 million barrels a day production cut.
But even with that news the upward momentum in the price of crude - both WTI and Brent terms - has slowed recent weeks.
Yet even with that slowing in upward price appreciation the net long positions of the big speculators has continued to grow the latest US CFTC data showed Friday. That increase in longs took positions to a new record high of 482,523 contracts.
Part of the reason upward momentum has stalled is that there is some focus on the continued increased in US productive capacity in the past couple of week's. Of course Saudi oil minister al-Falih - among others in OEPC - has said that the market is getting back toward balance and can absorb US production. But report after report continues to focus on the dampening impact that could have on prices.
Baker Hughes - the oilfield service company - reported more rigs were added in it's latest report. That took the total number to 566.
The stall in price moves is an important psychological "tell" for the market right now and one that suggests it is vulnerable to a position clean out before it finds more upward momentum.
So looking at the technical outlook you can see WTI is slowly slipping outside the uptrend it has been in since November last year. I wrote something similar last week and then the buyers came in taking prices back up into the mid-$53 region. So it could happen again.
But Friday's price action looks ominous. A move below $52.50 would both break the uptrend and perhaps signal a deeper move toward the $50.23 level which is where the 38.2% retracement level of this uptrend sits.
Only a break, and hold of $55.20/30 would substantially turn the outlook.
Have a great day's trading.