• Price ran through the target we set
  • Expect a bounce-back

Brent crude Oil rebound from last week’s sell-off: It was another wild swing for the Oil market, with Brent Oil down $19.40 in Asia session on April 22 and bounce back to $26.60 the very next day. Global equity markets bounced back along with Crude Oil.

The oil price movement is creating a risk-on/risk-off investment market sentiment to the financial and forex markets. In the past few weeks, the oil price has dropped to 18 years lows of $19.60 levels. We have been recommending a bearish target of $20.00 and $17.00 levels. In our latest article last Tuesday, we forecasted a target of $22, which the price runs through on Wednesday. The crude oil price lost above two-thirds of their value in1Q 2020.

Positioning:

  • Danske Bank’s latest IMM positioning (April 14-22) reported that speculators raise long bets “Largest single week net bullish WTI build since May 2016”.
  • Reuters reported, “Money managers raised their net long U.S. crude futures and options positions in the week to April 21, the U.S. Commodity Futures Trading Commission (CFTC) said on Friday. The speculator group raises its combined futures and options position in New York and London by 107,777 contracts to 307,321 during the period”.

Demand: Due to the COVID-crisis, most of the economies are placed lockdown restrictions. Even after the lockdowns, the demand crisis will remain in place due to travel restrictions. Demand refers to how much of a product consumers are willing to purchase, at different price points, during a specific period. Australia and New Zealand are easing lockdown rules. Today New Zealand is officially in level 3 lockdown (down from level 4).

  • HE Mohammad Sanusi Barkindo, OPEC Secretary-General, said, “Global oil demand in 2020 is now forecast to fall by as much as 6.8 mb/d y-o-y, due to the global COVID-19 pandemic and its impact on transportation and industrial fuels. Oil demand is expected to suffer the most in the first half of the year and shrink by more than ten mb/d before recovering somewhat in 2H20.”

What’s next? Now all the commodity favored eyes focus on Oil as the output cut by the OPEC+ group of counties led by Russia and Saudi Arabia kicks in on Friday.

This Friday is when the OPEC plus cuts kick in. In a historic deal, OPEC+ agrees record cut to oil production by 9.7 million barrels a day in May and June 2020. It is the deepest cut ever agreed to by the World’s oil producers.

Coming back to the technical side, Brent crude Oil extended losses on Monday after bouncing back to $26.20 last Thursday. The Crude Oil closed the day $2 or 10%, lower at $22.90.

According to the daily charts, the key support level is placed at $22.00 and $21.00. If the price continues moving up, key resistance levels are set at $23.40- $24.00 and $25.20.

The RSI has been developing a positive divergence since March 09, 2020. In case of a bounce-back situation we could expect $30+ levels in the coming weeks.

It is important to always keep in mind the risks involved in trading with leveraged instruments.

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