The oil price collapsed last week on Wednesday (we reported). This was triggered by rising crude oil inventories in the USA. And as a result futures traders are using the fear of the global economic downturn to beat the oil price even lower. All in all it was a crash in WTI oil from fairly accurately $5 to $57.30.
For two days now the oil price has been moving sideways with a small recovery of about 1 dollar to the current 58.36 dollars. In addition you should bear in mind that the USA is completely in holiday mode (Memorial Day) and that the British (Brent trade) have a bank holiday today. So you cannot speak of a solid bottom formation in oil yet. But which arguments currently speak for a rising and which for a falling price?
Rising oil price
On the one hand the fact that the USA has imposed strict sanctions against Iran and Venezuela speaks in favour of a rising oil price. It is therefore very, very difficult for the two countries to bring their oil onto the world market. There is a shortage of supply. And OPEC together with Russia has cut oil production by 1.2 million barrels a day since the beginning of the year. In the meantime it is even certain that the cuts have been significantly higher than planned. And the Saudis recently indicated that the cuts would probably continue in the second half of 2019. These reasons and above all the latest information from the Saudis ensured the upward trend in oil until Tuesday last week.
Falling oil price
First of all it has to be mentioned that the WTI oil price has already risen extremely strong in recent months. From 42 dollars to 66 dollars in only four months. Only this rise alone can justify a pause in the further rise. How extensive is this pause? Of course nobody knows that before. Most recently future traders increasingly used negative economic news as a reason to push the oil price down. At least that helped from Wednesday to Friday on the way down.
It is possible (but by no means certain) that these negative messages will continue to be used for shorting positions. We had already expressed our opinion. Negative economic data (Japan and EU) have been rushing through the tickers for months. But they haven’t influenced the oil price yet. The trade war between the US and China has also been raging for months. But it did not have a negative impact on the oil market.
Going through the analysts’ comments for two or three days you get the impression: Yes, now the trade war is happening and the weakening economy is such a negative factor. It justifies lower oil prices. Because less economic activity also means less oil demand! Will this scenario prevail for the time being? Let’s wait and see what Americans and British will do tomorrow when the future markets return to normal liquidity. Looking at the chart the 57.30 dollar mark last Thursday and the 57.50 dollar mark on Friday would be good support levels. If they fall there would be more room to go down.