Oil prices have remained very much under pressure since the start of 2020, falling demand and rising stockpiles have been noted. WTI crude oil from the peak high in January which was short-lived up at $65.60, is down a whopping 25%.
The highly impactful Coronavirus situation in China is also heavy, adding to the problems for the oil market. The demand for oil in China, the world’s second-largest crude consumer, has plunged because of travel restrictions to and from the country and quarantines within it.
A large oil refiner in the country, China National Chemical Corp announced that they would close a 100,000 barrel per day (bpd) plant and cut processing at two others amid falling fuel demand.
Any near-term rallies remain vulnerable to being sold until there is clarification on possible OPEC - Organization of Petroleum Exporting Countries and Russian intervention. Both have recommended that an additional output cut of 600,000 barrels per day (bpd) to its current 1.7 million bpd reduction to offset the disease-related demand losses.
However, Russia’s government has not made clear that it will endorse the deeper cuts but a majority of Russian oil companies want the cuts to extend through the second quarter at least.
What next for oil?
Should nothing be done to market satisfaction in terms of the amount being cut back, then expect hard selling pressure for oil to continue. Any cuts in line with general expectations, may provide a very short-lived rally, however again given this would be priced in, a sell-off will still be observed.
Price action has formed a double top just above $66, the neckline is seen at $51.30. The price has breached this via the weekly and is currently undergoing a retest. A rejection will make further way for downside, with eyes on the next major support at around $43-42.50 area.
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