OPEC Lowers Growth Forecast for Oil DemandCrude prices have headed higher on Tuesday, but the gains could prove to be short-lived. OPEC has revised its growth forecast for 2020, and unless it lowers production output, we could see crude break below the $50 level.
Coronavirus Keeping Lid on Oil Prices
The China coronavirus has taken a significant toll on the Chinese economy. This has led to a sharp drop for oil in China, which is the world’s second-largest consumer of oil. Officials have shut down most of the factories in the country and also restricted the movement of up to 400 million Chinese. China’s oil refineries have cut back and that has meant reduced demand for crude, with some analysts predicting that Chinese demand for crude has fallen by 20%. With no end in sight to the outbreak, oil is unlikely to rebound anytime soon, barring a catastrophic geopolitical event.
OPEC Lowers Oil Demand Forecast
OPEC members are becoming increasingly anxious as oil prices dip below the $50 level. Saudi Arabia has led an initiative to cut production by 600,000 barrels a day, but it remains unclear if Russia, a major oil producer, will go along with the proposal. If Russia does give its approval, this could give crude prices a badly-needed lift. Earlier on Wednesday, OPEC lowered its outlook for global oil demand growth in 2020 to 0.99 million barrels per day. This was down sharply from 1.22 million from the previous month’s estimate. In a glum report, OPEC left no doubt as to the reason for the pessimistic forecast, noting that “the impact of the Coronavirus outbreak on China’s economy has added to the uncertainties surrounding global economic growth in 2020, and by extension global oil demand growth in 2020.”
The 51.00 level is under strong pressure in support. Below, we find support at the key 50.00 level, which has been tested this week. Next, there is a support line at 49.00, which has held since January 2019. On the upside, we find resistance at 52.00, followed by a Fibonacci level at $52.52.