- Summary:
- Crude oil price opened this week's trading at its 3-month lows as fears of the coronavirus continues to take its toll on financial markets.
WTI crude oil dropped over 2.5% on Friday as CFDs closed at $54.21 from its open price of $55.63. As news of an increasing death toll and rising confirmed cases hit headlines over the weekend, WTI crude oil CFDs opened today’s trading at its 3-month lows at $52.57.
Crude oil price has been heavily hit by fears of the coronavirus which originated in China. In a span of two weeks, the number of infected people jumped from 18 to 2,800. The death toll also rose from 3 to 80. Consequently, both the public and market participants could not help but compare this novel coronavirus to the SARS outbreak in 2003.
Last week, the Chinese government announced that it would curb travel across 9 cities, including the epicentre, Wuhan. During the Lunar New Year which happened over the weekend, mass celebrations were cancelled to keep the disease from spreading.
Crude oil price dropped on this news mainly because it suggests that demand for the commodity will be dampened. As fears of the coronavirus grow, travel will be further curbed and economic growth could also suffer. It is said that the effect of limited travel during the Lunar New Year (said to be the busiest season for the Chinese) could cut demand by 260,000 barrels per day. This figure is estimated by Goldman Sachs and they have also said that it could lead to a $3-drop in crude oil price.
Read our Best Trading Ideas for 2020.
Crude Oil Price Outlook
On the daily chart, we can see that crude oil price is trading just below the $53.00 psychological handle. This price also coincides around the commodity’s previous lows where it bottomed on August 7 and October 10. Reversal candles around this area may mean that crude oil price could soon recoup its losses. If there are enough buyers in the market, we could see the commodity trade around resistance at $57.30 where the 100 SMA and 200 SMA coincide.
On the other hand, a close below its October lows below $51.00 could indicate that there is a bigger sell-off ahead. Crude oil price may fall to its September 2017 lows at $47.15.