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Crude Oil This Week: Up, Down, Sideways?

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.

WTI crude oil 1 hour fib

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.

Oil struggling to find momentum

For most of my investing life, I have been a part of the upwards bull run spanning nearly a decade. Growth stocks outperformed cyclical and value, interest rates were kept low, and oil was at favorable prices. However, this year I experienced two unprecedented events: The Pandemic and negative oil prices.

Brent Crude Oil

Both the pandemic and negative oil prices come hand in hand

Pandemic forced everyone in their houses, forcing a build up in oil inventories. So much so, that storage was filled to the brim, and oil producers were paying buyers (what a weird statement) to take their oil – hence, negative prices.

Since that historic day, oil prices have doubled, and Brent Crude has stabilized around the $40 - $45 range. However, it struggles to find momentum getting back to the glory days of $60 and $70 a barrel for oil.

If New Zealand is to be followed, higher prices for oil may be unlikely

We are all optimists at heart – no matter our opinion, we want things to be better than expected. Better than expected results for earnings means we get a boost in a stock price. Better than expected, Coronavirus vaccine results mean we can return to a life of normal quicker. However, in the words of Prime Minister of New Zealand, Jacinda Ardern, “Things will get worse before it gets better.”

Jacinda's statement was on the back of New Zealand recording more Community transmitted cases after 102 days of no community transmitted cases. Two things can be deduced from this:

Oil isn't just about supply

This is important because no matter how much suppliers restrict the supply of oil, there are two sides to the picture – the other side being demand. If New Zealand, after fully flattening the curve for 102 days, goes into another lockdown, can we assume that the rest of the world will follow a similar trajectory? Not to mention that countries like the United States and places like Victoria, Australia, have not been able to achieve what New Zealand has. Countries like Japan and Australia were initially praised for their low Coronavirus cases. However, they both have seen spikes due to community transmission.

That is a long-winded argument to back up the idea that Oil demand (and therefore oil prices) are inversely correlated to potential second lockdowns. And that may be the reason as to why we do not see oil push past $50 a barrel anytime soon.

Oil producers are hoping that that the Coronavirus doesn't force a second lockdown

The International Energy Association (IEA) reported they predict oil demand would average around 91.9 million barrels a day (BPD) in 2020. This is 8.1 Million barrels a day lower than the average of 100m BPD last year. Quick maths

That $15.4 Billion is assuming that oil prices stay at $45 and demand staying at an average of 91 Billion barrels a day this year. If a second lockdown occurs, we will see oil demand drop and the price of oil drop, causing a double blow to producers.

IEA noted that “Recent mobility data suggests the recovery has plateaued in many regions” and that the global oil supply was expected to be roughly steady in August. Assuming that demand is constant in August, we should see Brent Crude oil stay around the $45 mark. However, a second lockdown across the world as OPEC slowly increases its supply will lower oil prices.

How soon will Brent cover the gap?

With price wars between Saudi and Russia, to negative oil prices all during the Coronavirus, Oil has had one of its most turbulent year to date. However, deep cuts from OPEC and a resurgence in oil demand has helped oil prices stabilize around the $40 mark – with Brent peaking just under $43.929, just short of the psychological $44 mark. However, this is shy of the $45.5 mark required to close the gap pre-coronavirus.

WTI in Blue, Brent in Orange

Brent's losses are lower to its American Counterpart

It is interesting to note that Brent Crude is down 2.29% today; however, the American equivalent, WTI Crude, is down 3.1% today. This shows that the market is slowly, but finally, pricing in risk for different macro conditions. It makes sense that WTI, the grade of oil many American companies and citizens depend on, is lower due to Coronavirus cases continuing to climb in many large fuel consuming states such as California, Texas, and Florida. However, Brent Crude, the oil grade used worldwide, is down slightly due to the majority of the global population slowly emerging out of lockdown after relatively successful lockdown measures.

With oil shale companies taking on vast amounts of debt only serviceable with oil prices being at $60, low oil prices have been devastating for US shale producers. This is on Whiting Petroleum and Chesapeake energy filing for bankruptcy after they could not service their debt. Andy Lipow, president of Huston based consulting firm Lipow Oil Associates, stated that he does not “think $40 oil is enough to turn the shale industry” and that “the price is not enough to cover all the debt and costs that have been incurred during the boom.”

Bullish or Bearish on Brent?

However, not everyone is so bearish on the Black Gold. Christyan Malek, JP Morgan’s leading oil equities analyst state that there could be a supply gap around 2022 from delayed infrastructure projects and restricted supply, stating that “Covid-19 has increased the chances of much higher prices,” and that “the next oil supercycle” is on its way.

This pattern of market pricing in risk is not only limited to the oil markets. Today the NASDAQ closed higher, while the Dow Jones and the SP500 both closed lower as tech stocks and their balance sheets show their resilience in the Coronavirus era compared to more traditional businesses.

For now, however, we are likely to see oil range between the $40-$43 marks and $38-$40 marks for Brent and WTI respectively until positive signs show that oil demand is entirely on the road to recovery.

Crude Oil Drops Below $0 For The First Time in History

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.

Crude Oil Continuing to Flounder Below $20

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.

US Jobless Claims Double Again

This week’s jobless claims more than doubled last weeks’ record high, reaching 6.648 million. Last week’s figure of 3.28 million jobless claims was already 5 times larger than the previous record of 700,000. And now it has doubled this new figure again.

Economists have taken this as a sign that the government stimulus packages are already too late, with more than 10 million Americans having lost their jobs in this month already. Considering the US Labor Force is currently at 164 million, a 10 million combined figure of unemployment claims in the previous 2 weeks would put 6% of the American population without jobs. Added onto that the figure of 3.5% existing unemployment, and this could mean that close to 10% of the entire country is unemployed.

These figures are overwhelmingly in recession territory. Even during the global recession of 2008-2009, the number of jobless claims per week only reached 665,000 at its highest. Unfortunately even with the stimulus packages and rate cuts, businesses are laying off their employees en masse, especially in the hospitality and retail sectors, as those have been the hardest hit.

Conversely, oil posted its biggest one day gain yet, of 24.67%, after US President Donald Trump made a statement on Twitter that he had spoken to the Saudi Arabia Crown Prince Mohammed bin Salman, after previously promising to speak to Russian President Vladimir Putin, regarding the ongoing price war between the two countries. Trump stated that he expected the two countries to cut back on their oil production by 10, to possibly even 15 million barrels.

Immediately after the tweet was made, WTI crude jumped in price from $21.91 to $25.89, almost approaching $26 per barrel. However once the initial excitement faded, it once again fell back down, dropping below $24 at its low. This was most likely due to the fact that investors realised that even with a supply reduction, the demand isn’t high enough to drive prices back up. Of course, some were also doubting the validity of Trump’s tweets, questioning whether or not such a major agreement between the 3 largest oil producers in the world could even come to fruition.

The VIX volatility index has also decreased since the middle of the previous month, dropping from a record 82 points down to 50 now. Also known as the “Fear Index”, the VIX is a measurement of the level of expected volatility in the markets for the next 30 days, and is derived from the movement of the S&P 500. Initially moving below 20 points and holding steady, the VIX understandably surged following the global coronavirus pandemic, rising all the way to 82 points as the virus worsened across the world and economies ground to a halt. Despite unprecedented measures taken by Reserve Banks and governments around the world, such as the US Federal Reserve cutting the interest rate for the Dollar by 100 basis points, effectively dropping it 0%, as well as a $2 trillion economic stimulus package approved by the US Senate, volatility across all markets seemed to show no signs of wearing off. However, despite the drop in the VIX, a 50 point volatility forecast still represents a daily price change of around 3.4% for the S&P 500, which then translates to a +/-15% over the period of the month.

Join our livestream on YouTube every day at 10.00 am GMT. Check out yesterday's stream here, where we talked about the rebound in oil and stocks as the markets brace for NFP data. Make sure to follow us on Instagram and Twitter as well.

Finally, a Rebound for Oil

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 Only Thing Going Up in These Markets

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.

For more information, watch our video here by Anish Lal here at BlackBull Markets, or on Instagram and Twitter at blackbull_markets and @blackbullforex, respectively.

Crude Oil Drops Below $30 As Market Opens

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.

For more information, watch our video here by Anish Lal at BlackBull Markets, or on Instagram and Twitter at blackbull_markets and @blackbullforex, respectively.

WTI Crude Down 12% for the Week

Crude Oil has been on a bearish trajectory since the beginning of the year, and continues its downward trend this week.

WTI Crude plunged below the $50 mark and dropped as low as $45.94 per barrel. This marks a low of almost 6% for the day, and more than 12% for the week. A drop back down to its previous low of $45.52 which it hit in December 2019 is most likely set to happen as the coronavirus continues to directly impact oil prices, but the real question is whether or not it will recover after that, or continue to drop further.

As the price of oil continues to drop, it could impact production around the globe. While some countries such as Saudi Arabia can produce a barrel of oil for as little as $10, for others such as the UK, Australia, and Canada, it can quickly become unprofitable for them if the price of crude continues to drop any further. This would result in long term impacts as well as short, as this does not immediately slow down oil production, but rather discourages the exploration and development of new oil fields.

Crude oil is the world’s most traded commodity, and as a result has been one of the most affected by the coronavirus. China being the largest consumer of oil in the world does not help its cause either. China is beginning to lessen its quarantine restrictions on citizens in affected areas as the number of cases starts to decrease in the country, but large portions of its industry are still closed.

In other parts of the world, the US has braced themselves for the virus to impact them, as a woman in Northern California contracted the illness without coming into contact with anyone known to have the infection, which caused officials to speculate that the disease had spread amongst the US community. California health officials are currently monitoring 8,400 people for symptoms of the virus, ever since 33 people tested positive. After downplaying the effects of the coronavirus in the States just earlier this week, US President Donald Trump will be holding a White House conference to prepare for its spread in the country.

While the spread of the outbreak is continuing to slow down in China, a global pandemic still looks to be on the horizon as more and more countries are reporting new and increased cases. Oil producing countries in the Middle East have also caught the coronavirus as Iran struggles to contain its outbreak. As the country refuses to quarantine infected cities and instead is only restricting domestic travel, they have now reported 26 deaths, with several government officials being infected as well.

For a more technical analysis on WTI crude, watch our video by Anish Lal at BlackBull Markets here, or on Instagram and Twitter at blackbull_markets and @blackbullforex, respectively.