On the 12th of April, the OPEC alliance, headed by Saudi Arabia, and Russia reached an agreement to cut the production of oil by 9.7 million barrels per day until June, effectively ending the ongoing price war between the two countries. As well as this they will continue to restrain output for at least the next two years. Following this news oil was able to climb back up to $24.50 per barrel, but since then has continued to steadily bleed out, now dropping below $20 in recent days. On the hourly timescale, crude oil will find support at the $19.53 mark if it continues to bleed out, and resistance at $20.32 if it can manage to make a recovery from these lows.
Not too long ago, after tensions between Saudi Arabia and Russia flared up once more, US President Donald Trump tweeted that he had spoken to both parties and expected a production drop of 10 to even 15 million barrels for WTI crude oil. Investors initially reacted to these tweets by surging the price of WTI crude all the way up to $28 per barrel, before doubts began to settle in over whether or not such a monumental deal was able to be struck between the two countries.
Now the agreement has been made, one that is even measuring up to Trump's claims, but oil's recovery is nowhere to be found. And part of this is that OPEC is now forecasting that the amount of oil consumption in the world will fall by 6.9 million barrels per day for the rest of the year, sharply revising its earlier predictions of merely 60,000 barrels. These figures are most likely the result of several more countries entering lockdown, such as Japan, and others such as France extending theirs. Of course, the restriction of travel means that oil consumption will fall sharply.
As well as this, the OPEC alliance is still on shaky grounds. After negotiations failed between the two countries, Saudi Arabia immediately engaged in a price war by increasing its oil production in an attempt to undermine Russia. And just last week the two countries were still on hostile terms, each blaming the other for causing the price war to begin with. It was only at the insistence of the US were the two countries able to come together to reach an agreement.
More news affecting WTI’s fall was the news that China had seen its first economic retraction since 1992. China, the first country to be hit by the full impact of the coronavirus, reported a 6.8% contraction in its gross domestic product for its first quarter, even lower than already pessimistic expectations of 6.5%. China is one of the biggest buyers of crude oil, and following this news oil dropped by 30 cents, from $20.10 down to $19.74 per barrel. And China's negative data is only the start. As the global economy grinds to a halt, so too does the need for oil. As long as demand is nowhere to be found, oil will continue to stay at its current lows.
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