Market Overview

The enormous fear over the coronavirus outbreak sent oil from $60 to below $50 per barrel of Brent on Friday. Even better than expected figures for oil inventories rise in the US (0.45 barrels versus two million barrels expected) had not stopped the fall in oil prices. Investors fear the uncertainty around the virus and, as a result, oil supplies may continue to lead to further deterioration of the market. The World Health Organisation (WHO) admitted that 60% of the world's population could be contaminated with COVID-19. Bloomberg's warning that oil demand could contract by three million bpd has not impressed investors. The overall decline in crude prices totaled to 24% from $66 per barrel on January 20 when the virus hysteria started to squeeze markets to almost $50 as of Friday afternoon.

The reaction may be considered to be rather emotional, forward looking and not supported with clear negative developments in the world economy. The market tends to be irrational in times of such fears. Few people are following the decreasing numbers of newly infected persons and rising numbers of people who have recovered from the virus in mainland China. Could these numbers mean that the virus is not as deadly as it was considered before? Rumours and pictures with empty cities in China, as well as rapid virus spreading in Europe, do much more harm to the economy than the crowned virus itself.

Nevertheless, crude just sunk within those vicious media environment. The most important thing when it comes to oil is that it has reached the bottom recorded level since 2018. The $50 per barrel level is a strong technical support and psychologically important round support level, the Rubicon for Brent.

This level could well be sustained if no further apocalyptical matters appear. The prices could slow down at least for the beginning of March when the OPEC+ will decide on additional production cuts.

In this perspective the rebound of oil prices from $50 per barrel may be the ultimate scenario with $53-56 per barrel as a possible target.

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