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.
Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.
Indiscriminate reliance on illustrative or informational materials may lead to losses.
Risk Warning: Trading Forex and CFDs on margin carries a high level of risk and may not be suitable for all investors. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 72.72% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Prior to trading, you should take into consideration your level of experience and financial situation. TeleTrade strives to provide you with all the necessary information and protective measures, but, if the risks seem still unclear to you, please seek independent advice.
© 2011-2021 Teletrade-DJ International Consulting Ltd
Teletrade-DJ International Consulting Ltd is registered as a Cyprus Investment Firm (CIF) under registration number HE272810 and is licensed by the Cyprus Securities and Exchange Commission (CySEC) under license number 158/11.
The company operates in accordance with the Markets in Financial Instruments Directive (MiFID).
The content on this website is for information purposes only. All the services and information provided have been obtained from sources deemed to be reliable. Teletrade-DJ International Consulting Ltd ("TeleTrade") and/or any third-party information providers provide the services and information without warranty of any kind. By using this information and services you agree that under no circumstances shall TeleTrade have any liability to any person or entity for any loss or damage in whole or part caused by reliance on such information and services.
TeleTrade cooperates exclusively with regulated financial institutions for the safekeeping of clients' funds. Please see the entire list of banks and payment service providers entrusted with the handling of clients' funds.
Teletrade-DJ International Consulting Ltd currently provides its services on a cross-border basis, within EEA states (except Belgium) under the MiFID passporting regime, and in selected 3rd countries. TeleTrade does not provide its services to residents or nationals of the USA.