Oil Hits Fresh Lows
It’s been a frustrating week for oil bulls. Following the mild decline seen from last week’s highs, losses have been extended this week with price trading down to fresh 2020 lows as news of a massive over-supply has dampened trader sentiment and fuelled further speculative selling.
Oil price had been higher over recent weeks, recovering off the initial COVID-19 lows in line with the recovery seen across asset markets in response to the broad range of actions taken by global central banks.
However, the tide seems to have turned back against oil here. The first blow to the oil market was disappointment regarding the news of the latest OPEC+ agreement. Following talks last week, OPEC+ agreed to cut oil production by 10 million barrels per day, pending approval from Mexico. This approval was achieved over the weekend. However, Mexico agreed to a far lower level of cuts (just 100k) than was proposed (400k) meaning that only 9.7 million barrels per day will be cut, if all participants adhere to the restrictions. The news was disappointing, especially given that the market had been gearing itself up for cuts as high as 15 million barrels per day, in line with Tweets from President Trump ahead of the talks.
EIA Reports Record Surplus
With oil prices already trading lower on the week, the sell off was exacerbated by the latest report from the Energy Information Administration. The EIA reported a new, record build in US WTI levels last week of 19.2 million barrels. This was on the back of a record 15.2 million barrel increase over the prior week and has raised grave concerns over anaemic demand levels amidst the ongoing COVID lock-downs in place around the US and the world.
With central banks and other agencies such as the IMF and OECD warning of global recessionary risks this year as a result of the COVID crisis, the outlook for oil is challenging. If OPEC+ is able to strictly deliver the proposed cuts, this could help to stem the sell off in oil though it will take a re-surfacing of demand to help bring price back up.
OIL (Bearish below $ 29.26)
From a technical viewpoint. The move lower in oil this week, which was capped by the bearish trend line once again, has seen price breaking fresh lows on the year ($ 19.10). With VWAP still negative, further losses look likely here with the 17.10 and 10.70 levels the next support zones to watch. Near-term bias remains bearish unless we see a recovery above the monthly pivot ($ 29.26).
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