Technical Analysis: THE WOUNDED BEAST

THE WOUNDED BEAST

Oil markets yesterday have experienced what is
considered a technical correction, creating much expectation about a further
recovery. However, it would be hard to claim that it is objectively true.
Still, the market needs to deal with the Covid-19 and the disintegration of the
OPEC+ alliance.

The market remains under sellers pressure,
where investor and traders are still weighting the immediate impact in the
global economy with the spread in different latitudes of the virus, newly
affected countries are considering stronger lockdowns, that definitely will
create mayhem in the oil demand.

Today’s weekly report will have two charts to
explain and easily spot the bearish pressure in the weekly reign and the
technical correction in the H4 domain. In W1 (weekly charts) Oil has recorded a
69.20% plunge from its January high reaching levels last seen in Feb 2002, next
support level from 1998 at 16.24 could be achieved even with economic stimulus
announcements and the end of the price war between the Saudis and Russians. It
would take time for the oil market to cope with the intense never seen
disruption in the demand before finally correcting.

Now in the H4 domain (4 hours charts), the
price experienced a recovery of 38% from its lowest level, never seen before,
giving some enthusiasm to the market. Some experts said it was due to Trump’s
proposal on increasing the national oil reserves supporting the American drillers
hammered by the plunge in oil prices. However, personal opinion, this was a
more technical correction after reaching a critical demand zone of $20 per
barrel; bulls were sitting there expecting to fill up their orders, and
clearly, it just happens, pushing the price action back to the daily moving
averages. Finding resistance close to 50 Fibonacci level price action is still
under a clear bearish bias, where the last line of defense for the bears could
be the next Fibonacci level at around 61.8. Now, 50 EMA and 200 MA continue in
bright free fall. MACD (not displayed in the chart sorry) showed some bullish
divergence that confirmed this encountered correction.  The market will continue to check on the
Bulls’ endurance for this short-term correction.

As a last note, this downturn in prices for
the oil producer dependent countries could vanish governments revenues by up to
85%, for instance, Venezuela, Ecuador, Iraq, Nigeria, Angola are at particular
risk, opening the door for the international financial institution to step in
and take extraordinary measures. Iraq’s oil minister had pledged the call for
an emergency meeting with the OPEC this week when price tested the $26 handle,
with no confirmation on that front yet, let’s get into the weekend and see what
next week will bring to the market.