The price of oil falls and falls. Since 22nd of May it has already dropped by 10 dollars in WTI oil. The price is currently quoted at 52.91 dollars. Where is this supposed to end? Where can it end? And what are the current reasons for the recent crash? Because from Thursday to Friday alone it was a crash of 3 dollars!
Oil prices decline should have taken a break and last Thursday falling US inventories could have turned the page. But there were no announced declines and so the oil price could fall further. Two reasons made sure that on Friday it came back to heavy losses to the downside.
Two problems for a hypothetical rise in oil prices
On the one hand there is the rising US oil production (from 12.2 to 12.3 million barrels per day). Along with the non-decreasing stock levels this is causing an increasing supply in North America. At the same time Barclays’ Bank saw demand for oil in the USA falling by 370,000 barrels per day in March compared to the previous year. This is the worst value in almost two years. So: Rising supply and falling demand in the USA!
And there is also the fact that the trade war between the USA and China continues to escalate as if in a spiral. First Donald Trump announced new tariffs on all imports from Mexico. And now on the weekend new Chinese tariffs on US imports have come into force. This was announced on Friday. With it the volumes of the world-wide tariffs expand strongly. This is dampening world trade and the economic outlook. This should also dampen global demand for oil. The road to a rising oil price seems to be blocked at the moment.
What do the charts say?
And what do the charts say? The reasons for rising prices (OPEC cuts, sanctions against Iran and Venezuela) have been blown away. Especially by the trade war. In the following chart we show the WTI oil price since September 2018. Almost exactly half of the large increase since the end of 2018 has now been dismantled. We have now seen more than a strong correction. Broadly speaking there is a good support between 50 and 51 dollars, which goes back to prices in January and February. But whether chart technology is really decisive at the moment in the oil price crash? As we said last week, Donald Trump’s Twitter account is much more important right now.