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COT report: oil producers increase protection

Since OPEC agreed in late November of last year to cut oil production, WTI crude oil trades in a range of 51 to 55 USD a barrel.

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Last week, the price went up testing the resistance level at 55 USD twice, but the bulls failed yet again to reach a new record high. Looking at the charts, a break through that level could open the way for an upward move to 57 USD, and beyond up to 61 USD a barrel. However, alongside this resistance, two further factors slow down the upward trend in crude oil prices. On the one hand, with increasing crude oil prices more US shale oil producers enter the market, while on the other hand the Commitment of Trader (COT) report indicates a significant increase in net short positions held by the producers since December last year. In general, it is not surprising that producers hold net short positions, as they hedge the physical side of their business. But since the end of November, shortly before OPEC’s decision, the net short positions have been rising successively from 263 thousand contracts by 79 thousand to 342 thousand contracts last Tuesday. An indication that the important group of producers itself assesses that the upward price potential for oil is rather limited.

Even in the case of a break above the resistance level at 55 USD a barrel, the potential for oil prices might be limited due to an increase in oil production in the U.S. and further increase in short positions held by the producers. Only the OPEC could boost the oil price in a sustainable manner.

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