Crude oil took another major dive in overnight markets, reports Fiona Cincotta.
Crude oil is extending its decline, dropping to the lowest level in two decades on fears that the world is running out of places to store crude, as demand is crushed. Output cuts have clearly proved to be insufficient to cope with plummeting demand amid the Coronavirus lock down.
Despite losing 20% last week after the OPEC+ cuts failed to counter the Coronavirus demand hit, crude oil has tanked again. Storage, particularly in at the Cushing hub in Oklahoma is running so low that fears are growing that some U.S. producers will soon be forced to pay customers to take oil from them. Currently buyers of WTI crude oil are offering as little as $2 per barrel for some oil streams. Stockpiles at Cushing have increased close to 50% to 55 million barrels since the end of February. The sight has working storage capacity of 76 million barrels.
More cuts coming?
The 9.7 million barrels per day OPEC+ cuts are paling in comparison with the demand hit. Estimates are that global demand has been slashed by a third. The reality is that demand will not pick up until lock downs across the globe are eased – we are still a few weeks off that yet. It wouldn’t be surprising if the OPEC+ group decided to act again sooner rather than later in an attempt to put a floor under the price of oil, something they have failed to do so far.
Lock downs need to ease
Overnight the U.S. WTI oil benchmark plunged by as much as 21% to $14.47 per barrel, its lowest level since 1999. The price has since picked up and is down 17% at $15.23 amid some signs of optimism. New York Coronavirus deaths eased and some European countries are slowly opening their economies or at least are putting exit strategies in place.
While the soft oil prices are unsurprisingly weighing on oil majors on the open, other industries, such as travel, would benefit from lower oil prices, however with these sectors are still in paralyses; the benefit won’t be felt for some time. That said the softer oil prices will help these firms as they ramp up after the lock down.
Levels to watch
Oil is trading below its 50- and 20-period simple moving average on the four-hour chart. Immediate support can be seen at $14.67, the overnight low. After this round number $14 could offer support.
Resistance can be seen at $18.05—the overnight high—and then the April 16 high of $20.50 (see chart).
Fiona Cincotta is a Market Analyst for Currency Live
