The oil price does not look good at all. WTI oil is currently trading at $30.38, just above the big round $30 mark. This is psychologically important. The chart shows the development of the oil price (WTI) since March 4th. It is true that the low of 9th of March is at 27.40 Dollars. But currently the big round 30 is very important. If it falls, is the way down possibly open, and then the low of 9th of March could quickly come into view.
Oil price under double fire
First came the Saudi oil war against Russia and the US frackers, which caused the oil price to plunge from over 41 to 27.40 Dollars exactly one week ago. The Saudis flooded the market with additional production and lowered prices. This was followed by Trump’s entry stop for Europeans, which further weakened the price of oil. In addition to this, the crisis surrounding the coronavirus is now worsening. In Los Angeles and New York all restaurants and bars are currently closing. So in the USA too, public life is now being cut back further and further. What does that mean? Less and less economic activity, less car traffic, fewer flights. This, of course, significantly reduces the demand for oil.
What else is going on?
The Saudis’ oil war continues. Recent reports indicate that Saudi Arabia is now even shipping oil to Belarus. This is a slap in the face for the Russians, as expert Amena Bakr puts it. And yes, Belarus is the loyal close ally of Vladimir Putin. With this, Saudi Arabia probably wants to give Mr Putin a clear signal? So we do not expect an agreement in the short term that will end the oil war and cause the price of oil to rise. It is also interesting that Donald Trump announced on Friday that, according to his instructions, the US strategic oil reserve is now to be replenished substantially. With this he wants to buy cheaply “for the benefit of the taxpayer” at the low oil price.
And he wanted to help the local fracking companies. Sure, if the state quickly takes large amounts of oil from them, it helps. But not really well, because the state buys at this extremely low oil price! The news of this state purchase briefly spurred the WTI oil price from a good 32 to 33 Dollars on Friday evening. But you can see. Due to the increased panic over the weekend about the corona virus, the crash on the stock market is also continuing, and there is great fear that the demand side for oil will continue to weaken. And so the price of oil has dropped from 33 Dollars on Friday evening to just over 30 Dollars now. Last night’s surprisingly large interest rate cut by the Fed shows quite clearly how great the panic on the capital market is at the moment!