The Brent crude oil manages to set a near-term bottom between $25.70-$27.20 and trading in a narrow range of $32.50-$25.70 levels. The daily RSI is recovering, and the oscillator has turned bullish. Note that the recent oil price collapse was not led by technical factors. Demand shock race to lower prices. As we noted in last week’s report, we experienced demand-shock several times but not with the combination with a supply shock.
Recent market mayhem caused by the coronavirus spread outside China and Oil price collapse. Russia and Saudi Arabia have decided to have an oil war, driving the price of oil down to gain market share. The current Covid-19 crisis is going to be a severe impact on the economy and on people. Now no one doesn’t want to know when the recession is coming, but rather browsing for how long it exists. I expect a minimum of 6-7 months period.
The lower oil prices are here to stay for a longer time on demand deficiency and supply shock. Late 2015 to April 2016, the demand deficiency dragged the oil price towards $27, which was accounted for 75% retracement from the past high.
IEA cited, “Global oil demand to decline in 2020 as coronavirus weighs heavily on markets”. In the latest oil market forecast, The International Energy Agency said, “Demand this year drops for the first time since 2009 because of the deep contraction in oil consumption in China, and major disruptions to global travel and trade.”.
Coming back to the Oil price technical side, oil price jumps nearly 1.50% in the early Tuesday Asia session. On the hourly chart, A decisive breakout through the higher end of the falling channel could push further towards $32.45. A daily close above $32.50 would change the near-term price forecast to $34 and $36.70.
As shown in the below chart, the price has been trading in a symmetrical triangle within a falling channel. On the weekly chart, the price was traced out a double bottom at $27 on a closing basis (Weekly basis). Maybe this a temporary pause in the near term, and we still expect lower oil prices of $20-$17 levels in 2Q 2020.
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