OIL WEEKLY ANALYSIS – THE SLAUGHTER’S WEEK FOR THE OIL MARKET

The effect of the coronavirus has been felt not only within the energy markets but far and wide in any other financial instruments across the board; stocks, Forex, cryptocurrencies, commodities, you name it. Its effects have landed in the modern world as the latest black swan. Now, the unleashed oil war by retaliation over the no-consensus in the latest OPEC+ meet has unfolded the most significant drop in the oil market since 1991 with the start of the Gulf War. The oil price has dumped since its January peak 58.33%, and this carnage will continue as the market gets overflooded with cheap oil, meaning that price could fall even further throughout the month and possibly beyond.

Now technically speaking, the charts confirm the bearish pressure on the prices. Price action has broken all supports from Fibonacci to the rising trend lines, testing 27.40$ handle from February 2016 and previous September 2003. With price recovering some grounds trading at the 32$ handle but with a MACD still showing a strong bearish bias and a Stochastic getting used to an oversold region. From a weekly time frame, the 20 and 50 EMA have already gotten below the 200MA. If there is no change in the market, the next supports are around 24.82$ and 17.12$. Hopefully, those levels would not be reached as some economic stimulus should be in place to avoid the slide in the oil prices, at least temporarily.

However, the price war is announced for major escalation, with Saudi Arabia increasing its production to 12.3 mb/d, a statement by Aramco chief Amin Nasser to Reuters; and Russia keeping the rhetoric notifying they can weather the storm for ten years with an oil price around 25$-30$ per barrel and could inject 0.5 mb/d additionally to the market. With the contraction in demand and the expansion in the production, it would bring a new high demanded commodity to cope with this situation: storage facilities, VLCC (Very Large Crude Carrier) and ULCC (Ultra Large Crude Carrier) as the surplus pumped out crude oil must be stored somewhere.

With the continuous spread of Covid-19 creating a massive demand shock that could translate in leaving 5 million barrels per day unburned, the global economy has the potential to be extremely ugly for the coming months. Now, would hot weather control the spread of the virus, considered a pandemic lately by the WHO, and hopefully, bringing an improvement in the demand with a correction in the energy market.

Keep safe, and remember to wash your hands and avoid as possible crowded places. May the market correct a stay with us. See you all next Friday and a happy weekend ahead.