Oil Price Fundamental Daily Forecast – Speculators Still in Control; Professionals Looking for ValueWe’ve said since the start that with a sell-off fueled by speculators, the market will go down until it hits a value area attractive enough for the professionals to find value.
U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading lower Monday afternoon local time, but inching up from earlier lows. Shortly after the opening, U.S. crude oil hit its lowest level since October 10 and Brent reached its lowest level since November 1. Fears of a global slowdown in crude demand, fueled by the coronavirus outbreak, were the catalysts sparking the selloff.
CNBC reports, the flu-like coronavirus, first identified on December 31 in the Chinese city of Wuhan, has killed at least 81 people, according to Chinese officials, with 2,862 confirmed cases. The virus has spread to 10 additional countries, including South Korea, Japan and the United States, where the fifth case was confirmed on Sunday.
Potential Impact on Demand
A slowdown in China’s economy would hit oil demand since the nation is the world’s largest crude oil importer – importing a record 10.12 million barrels per day in 2019 – and the world’s second-largest oil consumer, according to data from the General Administration of Customs.
“Supply risk has been tested in acute fashion over recent months, but the coronavirus presents the first major serve test to demand in years,” RBC analyst Michael Tran said in a note to clients Monday. “Concerns surrounding the virus and the negative impact on demand have taken the oil market hostage and have sent oil prices on a five-day losing streak.”
Saudi’s Downplay the Threat to Demand
On Sunday Saudi Arabia’s energy minister Prince Abdulaziz bin Salman said that OPEC+ would step in to bolster prices if needed, while noting that the sell-off was “primarily driven by psychological factors and extremely negative market expectations adopted by some market participants despite (the virus’) very limited impact on global oil demand,” according to a report from Reuters.
We’ve said since the start that with a sell-off fueled by speculators, the market will go down until it hits a value area attractive enough for the professionals to find value. For March WTI crude oil buyers, the first value area is $50.09 to $50.18. For March Brent crude oil buyers, support is at $54.93.
Given the nearly $6.00 spread between Brent and WTI crude oil, a break in Brent to $54.93 would bring WTI crude oil down to about $47.00 per barrel.