The crude oil industry continues to experience one of its worst times as prices regain their bearish momentum despite the latest highly anticipated OPEC+ deal in which industry players agreed to reduce their supply in the market.
Crude oil prices are off to a bearish performance this week contrary to expectations that the OPEC+ agreement would fuel an upside in oil prices. The oil prices have so far broken through the 23.31 and 23.11 support levels as the bears prevailed on Monday morning and even pushed past the 22.21 support, thus indicating strong momentum. There were slight attempts at recovery during the Monday morning session with prices recovering and managing to cross the 23.71 and 23.91 resistance before the bears took back control.
The poor performance in crude oil prices is consistent with the fact that investors have for the past few days shifted away from investing in commodities. Instead, they have moved to haven currencies such as the U.S dollar as the coronavirus continues to pound hard on global economies. Crude oil’s performance on Monday has come as a shock to the oil industry especially considering that the OPEC+ agreement was expected to fuel a rally in oil prices. OPEC expects oil production and supply to go down by 9.7 million barrels per day.
The failure of crude oil prices to rally is mainly because there is currently a very low demand for oil products such as fuel in the industry. Most airlines have grounded their planes because people are not traveling as much due to coronavirus. Self-isolation and quarantine measures mean that very few people are using their vehicles every day to go to work or run errands. This explains why the demand for crude oil has been on a sharp decline.
Daiwa Securities’ forex strategist, Yukio Ishizuki, believes that the oil prices failed to yield after the announcement of the oil output cuts because the low demand has already done too much damage and continues to do so. Nevertheless, oil industry players are optimistic that the decision to slash production on Sunday will eventually lead to improved prices as things get better.