- Summary:
- Crude oil price on Brent as well as US crude futures resume steep declines towards multi-year lows, even as policymakers search for solutions.
Following yesterday’s historic plunge in the price of US crude futures into negative territory, the crude oil price on the WTI benchmark reset itself today to just above $20 following the expiration of the May contract and the onboarding of the June 2020 contract. However, the main fundamental driver for yesterday’s slide remains. In essence, crude oil storage capacity across the world is at exhaustion point, even as no one is buying and producers are still churning out barrel upon barrel of crude.
As I stated in yesterday’s analysis of the issue, OPEC + members would have to deliver some form of reaction, seeing that the production cuts agreed to are yet to kick in. Today, Saudi Arabia’s cabinet was quoted in a tweet by the Saudi Press Agency (SPA) as saying that the Kingdom was “monitoring market conditions closely and ready to take any additional measures in participation with OPEC+ members.”
While the statement has done little to stop today’s slide in crude oil price, it is a recognition of the problem and the need to take definitive action to save the oil industry of many of its members.
Brent crude oil price has also tumbled on the day by 24.42% as at the time of writing. We may not have heard the last of such steep drops.
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Technical Outlook for Brent Crude
Crude oil price on the Brent benchmark has declined by almost a quarter from yesterday’s close, which takes the asset out of the descending channel seen on the daily chart. To get a perspective of how far prices have fallen, the monthly chart below shows price action dating back 30 years.
Brent crude oil price has dropped below the November 2002 lows and is fast approaching the October 2001 lows at 16.92. A breakdown of this price level brings the 1998 lows at 9.55 into focus. If the bottom decides to drop out at this level, we can only wonder how far prices will keep dropping.
A bounce of price at any of the levels as mentioned above, would be an immense market surprise, given the state of affairs in the energy markets. The Head of the International Agency Fatih Birol says that countries with “strategic oil reserve make capacity available to take surplus barrels off the market,” even as he also opines that the OPEC + supply cut will not be sufficient to solve the situation. If we see countries commit to expanding refining and storage capacity in the next few days, this may provide a glimmer of hope on which crude oil price may bounce from the support levels as mentioned earlier levels. Such bounces could target the immediate resistance area north of 9.55, which include 16.92, 22.35 and 24.68.