Oil Is Getting Crushed On Demand Worries

Oil Demand Under Pressure Due To Coronavirus

Crude oil is having another tough day following the broad market downside in many asset classes. Over the weekend, U.S. and European countries have announced a number of coronavirus containment measures which put future oil demand at risk.

This development comes at inopportune time for oil since it lost support from the OPEC deal after Russia failed to agree to additional production cuts, and the deal collapsed.

The biggest problem for oil traders right now is that new measures against coronavirus are announced every day, and it is impossible to predict their ultimate impact on the oil demand.

At this point, it looks like oil demand will dip very materially in the second quarter of 2020 as almost every sector of the world economy suffers from the recently announced measures to contain the virus.

The traditional measures of support – printing money – may not help in the current situation since money printing won’t increase the number of flights or miles driven by consumers.

The U.S. Federal Reserve move to cut rates in an emergency meeting only provided temporary support for oil prices. Fed’s purchase of Treasuries might help to provide support for the bond markets, but the physical oil demand is set to suffer anyway.

Oil Tries To Find Support Near $30

Oil’s main support factor right now is that it has dropped to $30 in a very fast fashion, so some speculative traders and investors will be trying to establish their positions at current levels.

The following trading days will surely be bumpy since the market will get new information about the potential impact of the coronavirus on oil demand every day, if not every hour.

In my opinion, current coronavirus-related measures are set to expand even further because there is no other way to combat the virus in absence of a vaccine.

The vaccine will take months to be developed even in the best-case scenario, so government officials around the globe will be forced to take serious measures to gain time and prevent their healthcare systems from collapsing.

Thus, one can count on a continued flow of negative news for oil in the coming days.