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WTI Oil – Market Analysis

While just a few days ago Oil was testing a new level below $21, during the past three days it seemed to be contouring a steady-increase. But could we witness a trend reversal or was it all just a correction of the downtrend that started at the beginning of the year? Today’s events could provide some clarity, in light of the latest updates.

Keep in mind, however, that the $40 drop in Oil’s prices couldn’t have been caused only by the pandemic leading to reduced consumption. Read on to find out what’s causing Oil’s trend. 

As always, investors shouldn’t only focus on what’s on the news to find out more about Oil’s trend. But, considering that Friday’s Baker Hughes report revealed a significant drop of more than 40 Oil Rigs in the US, how could’ve you anticipated such a substantial increase in inventories? 

That’s easy! You could’ve done it by following what OPEC+ members are doing. For example, closely following the Economic Calendar, you could’ve tracked Tuesday’s OPEC detailed monthly report. It showed that aside from Algeria and Iran, that kept their production unchanged compared to last month, all the other countries increased their production

In fact, the only country to comply with the OPEC+ agreement valid by the end of March, was Saudi Arabia, the largest petroleum exporting country in the world, and one of the founding members of OPEC. Following this announcement, you could’ve anticipated that it all just added to the pressure that seems to be at an all-time high. All following the uncontrollable increase in inventories, and the apparent failure of the producing countries to limit the output, and once again support prices.


Not only OPEC+ impacts Oil’s prices

The API report from Tuesday could’ve also pointed that the weekly US crude oil inventories increased by 10.485 million barrels, opposed to the -1.250 million from last week. While following Wednesday’s EIA report you would’ve noticed it only confirmed what API discovered, from the sharp increase in inventories for the week of March 27th.

Going up to 13.834 million barrels after an increase of 1.623 million barrels over the past period, although analysts had expected a far lower increase, of approximately 4 million barrels.  

To all the above, the Saudi Arabia-Russia Oil price war only adds further pressure. How, you ask? By the simple fact that these two Oil-producing countries don’t seem to reach an agreement to lower output, for the countless times in the past 18 years

In fact, their feud is so intense that instead, there are speculations that they might end up doing the exact opposite, and dramatically increase production this month. On one hand, Riyadh is purchasing tankers to supplement the output; on the other hand, Russia is having talks with the US insisting it agrees with all being nonsense, but at the same time refusing to schedule a date to open negotiations with the kingdom. 

The oil market is notably in a difficult situation. In fact, a Reuters Poll from two days ago proved that investors anticipate Oil’s prices will most likely remain under $35/barrel, for the rest of 2020 mostly due to the virus-related crisis. This seems to be countered by Bloomberg’s analysts considering that if the crisis ends, prices might have a chance to go back to $45 in a couple of months. 


You might also enjoy reading: The Main Economic Events that Impact Oil’s Prices

‘While not many assets often enjoy being in the spotlight, there is one commodity in particular, that seems to be shining brighter than most. Oil has been bending over backwards to catch investors’ attention, mostly every day of the week.’ Keep on reading to find out how…

What can we expect next from Oil?

Yet, all of the above are placed under the enormous pressure created by the global pandemic that had debilitated China’s demand, closed borders, and halted entire industries from operating; all leading to a gravely decreased demand and consumption of Oil and energy

Despite the certain Fundamental Analysis aspects indicating that a possible uptrend might be supported, be aware of the Technical indications that point towards a strong-downtrend on the medium-term chart. This tendency seems to be supported by the Parabolics SAR

However, the RSI seems to be flat and slightly bent downwards, below the 20 point line, in a trend it started on the 16th of March, pointing that a possible upwards reversal is likely to happen if the asset becomes oversold. 

The same is hinted by the Bollinger Bands that seem to be as further from one another as they can, as well as the MACD that although broke the Signal line from above, is currently visibly distanced from it. We receive the same from the shot-medium-term analysis. 

As a matter of fact, only the short and long-term Technical Analysis point towards a different scenario, with a well-defined downtrend signalled by all four indicators. 


Traders, be aware!

As Trump just tweeted yesterday, it seems that a potential agreement between Saudi Arabia and Russia might be on course. It will presumably lead to a cap of approximately 10 million barrels per day, “or maybe more” as the US President’s tweet describes. 

As a response to the announcement, Saudi Arabia has called for an emergency vortex with Russia, and other OPEC+ countries, for a date yet to be announced. The news seem to have already impacted the markets, but only today’s reports could provide further insight regarding Oil’s close future trend.

Caution is recommended, especially in anticipation of today’s report, and especially after a day ago OPEC announced a significant drop in their daily basket oil price to less than $17, from the $22.61 a day before. 

For the day ahead, all eyes will be now on the NFP and Baker Hughes reports, to find out how the Oil is doing compared with the unexpected increase in jobless claims, and the Oil Rigs pumping in the US.

What do you think could happen next?

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