Set your predictions for where Crude Oil is heading this week. Everything is on the table.
The past week’s trading of Oil was definitely affected by the infamous Ever Given ship obstructing the Suez Canal. Crude indices swung back up in price once the ship was dislodged from the canal’s bank. Passage through the channel is possible again, and the 350 boats moving US$9 billion worth of global trade per day have resumed their journeys.
While Oil has had an upswing, volatility is still very much present in the market. With the Evergreen difficulty receding, the market moves its attention to the upcoming OPEC+ meeting this Thursday.
OPEC members are expected to keep oil supply at its current low level or even lower production. The member states are anticipating lower oil demand from Europe as a fourth wave sweeps through the continent. Saudi Arabia will be looking to flex its membership muscle and restrict oil supply and possibly pump the price up a little.
The 1 Hour chart on WTI Crude shows prices being well supported by the 38.2% fib level at $61.29, with near term resistance at $62 a barrel. With the OPEC meeting looming, investors could see an opportunity to target the 50% mean reversion at $62.539.
As of writing, WTI crude is sitting at US$61.53, Brent Crude is US$64.96, and the OPEC Basket is US$62.56.
In a truly bizarre turn of events, crude oil has dropped below $0 for the first time in history. Over the course of the day, traders watched as WTI crude oil crashed during its trading session, falling to $15 per barrel, and then $11, before finally giving out and turning negative. It is now so bad that traders are willing to pay for oil to be taken off their hands.
At its peak, oil futures contracts for May were trading at -$40.32 per barrel, before ending the trading day at -$37.63. This is a 306% drop in price.
The biggest factor affecting oil right now, as I stated before, is the lack of global demand. Oil consumption has fallen 30%, due to the fact that planes are stranded, and all forms of travel is restricted. And now, due to the lack of demand, traders are left with a large excess supply with nowhere to store it, and thus are trying to dump it as fast as possible. The main storage facilities for oil, which are in Cushing, Oklahoma, are fearful that they will run out of storage. The amount of oil stored there rose 9% in the past week, equalling to about 61 million barrels in total.
It is estimated that there are currently 160 million barrels of oil sitting in storage tankers around the world, due to the fact that refiners are not processing said oil.
Despite this drastic plunge, it is does not seem like traders think this will be an extended issue, as prices for the June delivery contract were more normal comparatively, with only a 14% drop, down to $21.32 per barrel.
Comparatively, prices for Brent crude also fell, but was nowhere near as bad as crude, because storage for it is more readily available.
When asked about the price drop in oil, US President Donald Trump said that it was a short term drop and that more production cuts were needed. He also said that the US government was looking into buying 75 million barrels of oil while the price was low, in order to place in strategic petroleum reserves.
Usually for consumers, a price drop in oil means lower prices for petrol. However, with this current price crash, it is unclear just how consumer prices will be affected.
We talked about the oil crash as it was happening, last night on our YouTube livestream. You can watch it below, or join us every day at 10.00am GMT and ask us questions.
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.
Join our livestream on YouTube at 10.00am GMT every weekday, where we discuss key market moves, technical analysis, and answer any question you may have. Watch our last stream here, where we talked about the power of the US Dollar and the latest jobless claims data.
Crude Oil has rebounded back to above $25 per barrel, with a 25% gain for the day. This is one of the biggest single day gains in oil’s history. This rebound comes after WTI had seemingly hit rock bottom, reaching $20/barrel just a day earlier.
Similarly, Brent oil also recovered from a near 17 year low, back up to $27 a barrel.
WTI had been consolidating at the $30 mark following its massive sell-off earlier in the month, after trade negotiations between the OPEC alliance and Russia collapsed, and Saudi Arabia announced it would be increasing its oil production up to 10 million barrels a day.
Immediately following this announcement, oil crashed from $45 to $30 per barrel. Analysts were unsure of just when oil would bottom out, speculating that it could fall as low as $20/barrel. And after a period of brief consolidation it did just that, fuelled by the sudden rise in severity of the coronavirus pandemic.
In a previous article, I said that crude oil was falling with no bottom in sight. And with today’s rebound, it seems that bottom may have finally been found. However, with the current market volatility, there are absolutely no guarantees. Large swings in either direction have become commonplace, and it seems unlikely that oil will make any real recovery due to the current market sentiment.
Despite these strong gains for the day, it is unlikely that oil will make any sort of significant recovery, as the trade war still rages on. As the de facto leader of the OPEC alliance, Saudi Arabia is committed to reducing the price of oil in order to undercut Russia, and are showing that they are willing to suffer lower profits to gain more customers.
As well as this, there is also just less demand for oil with the coronavirus pandemic causing people to stay at home under self-isolation. With public gatherings now banned in a significant number of countries, travel being limited, and social distancing being preached, there are less and less opportunities for people to spend fuel. Many countries have now introduced extremely strict travel restrictions, effectively closing their borders. Just yesterday both Australia and New Zealand announced that they would be closing their borders to all travellers except citizens and permanent residents. The US-Canada border was also closed, to the mutual agreement of both governments.
This reduction in vehicular travel, from cars to planes, has caused the demand for oil to drop sharply, with airlines having been the hardest hit. In New Zealand, the government has offered a $900 million loan for Air New Zealand, in order to keep it afloat. It has also stopped Air NZ stocks from being sold.
These announcements were made after the NZ Dollar plummeted, dropping down to an unprecedented 55 cents against the US Dollar. A combination of both the USD’s current strength as the only currency gaining value, as well as the Kiwi Dollar’s trademark volatility and reputation as a high risk asset, and the result could only have been disaster.
We have sent a special message to the New Zealand government regarding the COVID-19 situation. Presented by Anish Lal and Philip van den Berg at BlackBull Markets, you can view it below, or otherwise on our other social media platforms, such as Twitter and Instagram.
The US Dollar has been making sharp moves as the only market trading in the green in the current economic crisis. On the US Dollar Index (DXY), the greenback has been living up to its name by making steady gains since the 9th of March, rising from below 95 points to above 101, the highest it has been since 2017.
This gain in the USD has been due to the fact that investors are now pulling out of other markets due to their extreme volatility, and withdrawing it back to liquid cash. The global economic uncertainty has caused the markets to fall with no bottom in sight.
The Trump administration recently announced a stimulus plan of $1 trillion, the largest of any country, as a response to the current chaos in the markets. As part of this plan, the government said they were talking about sending cheques of up to $2000 per month in order to offset loss of income, as well as being able to defer up to $1 million in income taxes.
These government interventions come after US stocks officially entered bear market territory upon the market open this week, with the Dow Jones Industrial Average having its second largest single day drop in terms of percentage in history. The Dow Jones has now fallen below the 20,000 point mark, erasing all gains made in the last 4 years in just one month. All 3 major stock indices, the Dow, NASDAQ, and S&P 500 have all fallen more than 20% for the month. And now the New York Stock Exchange has been temporarily closed, with plans for move entirely to electronic trading starting from next week's market open as a precautionary measure.
Similarly, the price of WTI Crude is still falling dangerously, now falling below the $21 per barrel mark, and looking set to hit $20 very soon. There is growing concerns that the demand for oil will continue to drop, as more and more travel restrictions are put in place. People are being asked not to go to work, not to go to public places, and generally stay at home as much as possible. Of course there is also the continuing price war that Saudi Arabia has started, after the collapse of the negotiations between the OPEC alliance and Russia, which is what caused the massive price drop from $45/barrel to begin with. After that initial news crude oil plunged straight down to $28/barrel, before recovering slightly and consolidating precariously just above the $30 mark. However in recent days oil has begun to fall again, falling straight below $25 following stricter restrictions being placed in the US such as the US-Canada border being closed.
Despite these unprecedented changes it seems that the global economy is headed towards an inevitable recession that no country can avoid. While most are still waiting for next month's jobs release data before making the official call, the general sentiment is that we are already in a global recession. All attempts made by the world's governments to offset the economic damage boost spending have only been meet with pessimism as the pandemic worsens with no clear end in sight.
As the US market opened, everyone knew that the only direction to go was down. The only question was how far.
However, no one could have predicted that the Dow Jones Industrial Average would drop 2,014 points over the course of the trading day, a one day drop of almost 8%. It was a drop so bad that it called markets to be halted for 15 minutes, stopping trading completely in order to prevent it from dropping any further. The other two major US stock indices, the NASDAQ and S&P 500, followed suit with similarly shocking drops of 7.3% and 7.6%, respectively.
The question is, what has caused this extreme drop in virtually every market?
As expected, the market had already been bearish on all fronts since the beginning of last month due to the coronavirus, causing some of the biggest market movements in history in just the last few weeks. The Dow had just dropped over 1000 points just two weeks earlier.
The coronavirus had already presented itself as a significant threat, and has since only continued to become more deadly.
For one, the proper arrival of the virus in the States, and the Trump administration’s subsequent efforts to combat it, have not produced any faith whatsoever. The first thing President Trump did was go in front of the press and say that there were only about 10 cases in the country when there were 52 reported cases at the time, and claim that a vaccine was on the way, which a White House representative had to later correct and say he meant a vaccine for the Ebola virus.
Then, when the threat of the virus could be ignored no longer, the next thing he did was to assign Vice President Mike Pence as head of the coronavirus task force, supplanting the Secretary of Health and Human Services Alex Azar. Pence has had to be brought up to speed on everything regarding a virus which is fast spreading and could very easily grow out of control.
Next, cities and states across the country reported that they still did not have enough test kits to be able to track the spread of the virus.
Trump’s chief of staff, as well as many other senior officials, have entered self-isolation after coming in contact with infected individuals. Most recently, Trump and Pence attended an event where an individual with the coronavirus was present. White House representatives have said that Trump has not been tested for coronavirus.
Investors to take these actions as evidence that the Trump administration is incapable of combating this crisis effectively, and the result of their low faith can be seen in the stock market.
However, this week’s opening crash was due to a variety of factors, not just the coronavirus scare. Of course, the other biggest factor that caused the markets to crash was the drop in oil. As covered in yesterday's article, both WTI crude and Brent oil experienced one of their biggest drops in 30 years, to prices not seen since the Gulf War. Interestingly enough, crude oil has now made a slight rebound. After hitting a low of $28 per barrel, WTI has now come back up above the $30 mark and seems to be holding steady for the time being. It was miniscule to say the least, but the price seems to at least have stabilised again after what was feared to be a free fall drop with no floor the previous day. As America is the largest producer of oil in the world, Saudi Arabia’s forced price war could cause many oil businesses in the US to lose their jobs, if these prices are to continue.
Outside of the US, Italy has now spread its quarantine to the entire country, affecting 60 million people. This nationwide lockdown is an unprecedented effort to stop the spread of the virus, something no other country has even attempted yet, if this move doesn’t show how serious the epidemic has become. Of course, Italy now has the most deaths from the coronavirus outside of any country apart from China, with 463.
You really can’t expect a major European country to enter complete lockdown and not expect the markets to react negatively. In combination with all the other factors, and its no surprise investors seem to be expecting a global recession. Not too long ago, I wrote an article looking at whether or not the coronavirus would cause an economic recession. And it certainly looks to be going that way now more than ever.
Perhaps these market movements were just the result of a panic selloff. At the time of writing, stocks have now made a slight rebound after the initial crash, with the Dow back up 800 points. However, there is no denying that with the current market sentiment, the outlook is unbearably negative. It’s looking like things are going to have to be worse before they get better. One thing’s for sure, this level of market volatility isn’t going anywhere anytime soon.
WTI Crude Oil has experienced a tremendous sell-off as the price dropped 30%, falling below $30 a barrel. This is an unprecedented drop in the price of oil, with prices like this not having been seen since 1991 during the Gulf War. It comes off the back of the collapse of the OPEC+ alliance between Saudi Arabia and Russia, and Saudi Arabia deciding to slash oils prices as a result.
The OPEC, or Organisation of the Petroleum Exporting Countries, is an alliance between various oil producing countries, with Saudi Arabia its de facto leader as the country with the most oil production in the world. Saudi Arabia contains 18% of the world’s oil alone, and is the biggest exporter of oil, being comprised of 70% of its exports.
Originally a deal between the OPEC alliance and Russia to limit oil production, the collapse of the negotiations in Vienna led prices that were already declining to plunge even further. As Russia refused to agree to the terms, Saudi Arabia has now decided to engage in a price war instead, as it simultaneously promised to boost oil production to 10 million barrels a day in an attempt to gain more market share.
The market reaction to this move was immediate, as prices instantly dropped 30% as soon as the market opened. Trading at $45 per barrel when the market closed, prices dropped to $31, one of the biggest one day drops for oil in history.
As the biggest producer of oil in the world, Saudi Arabia is aiming to hit its competitors hard in order to win over new customers next month, which means that there is there is no floor for these prices to drop to. According to Goldman Sachs, Saudi Arabia could very well let oil drop down to $20 a barrel before they stop. Saudi Arabia could also be putting this enormous pressure on Russia in order to drive them back to the negotiating table.
This latest news throws an already skittish and volatile market into chaos once again. It comes just after what seemed to be the beginning of a market recovery, as US stocks seemed to finally be on the rebound after the crash experienced just a few weeks ago. The full effects of this price drop will only be made clear over the coming days and weeks, as we see just how long Saudi Arabia is willing to keep these prices going on for.
WTI crude oil was down 30 cents for the day, dropping down to $52.60 per barrel. It is down almost 1.8% for the day, and almost 14% for the month of January, continuing the downward trend.
This is a stark change from the beginning of the month, when oil prices peaked at above $63.50, the highest they had been since April 2019.
BlackBull Markets’ Anish Lal had the following to say regarding the movement of WTI crude:
“Crude Oil, commonly known as Black Gold, has been under extreme pressure in the wake of the Virus, as investors begin to price in slowing global growth based on the potential economic impacts from slowing demand in China. Traders should find strong support just sub the $51 mark, and a move into this zone will be key in depicting future direction. A break below this key support level could see lows from November 2018 sub the $50 price range.”
For more from Anish, watch his Trade in 60 Seconds here, as well as follow us on Instagram at blackbull_markets for the latest updates.
Many assets have been impacted by the continued spread of the coronavirus in China, but crude oil has experienced one of the biggest drops. Crude oil is the world’s most actively traded commodity, with China being one of the largest buyers.
The latest news on the coronavirus sees 170 confirmed dead, with over 7,700 confirmed cases. With no cure yet been found, prices are expected to continue to drop as the infection spreads. Various countries are scrambling to evacuate their citizens from Wuhan, including Japan, Australia, and New Zealand.
The World Health Organisation will be meeting tomorrow, in order to discuss whether or not to establish a global health emergency regarding the virus. This decision comes with the latest news of 3 countries- Japan, Germany, and Vietnam- all reporting limited human-to-human transmission.
While the number of cases continues to escalate in China, there has been no sustained growth in infections in other countries. There have also been no deaths caused by the virus in any other country outside of China.
Sources: BBC, statnews.com