2020-04-28 • Updated
Oil is the subject of heated debates these days as nobody really knows what to do with the “humiliated” asset. Market traders are scared in the oil markets.
The oil demand declined by 30% because of the coronavirus lockdown. Saudi Arabia and Russia couldn’t agree about the production cut and they started the so-called oil war and supplied as much oil as they want. As a result, the oil glut and reduced demand pushed the oil price deep down.
Only then OPEC+, made a deal to cut 9.7 million a barrel a day, nearly 13% of global production, on May 1 through June. However, it was too little and too late.
The oil price went below zero by two reasons. Firstly, it was cheaper for producers to pay consumers just to take oil off their hands as they run out of all the storages. Secondly, traders, who hadn’t sold the May futures contract on time, didn’t want a physical delivery of the oil.
The situation is absolutely dire for small shale producers, what corresponds to WTI, while Saudi Arabia and Russia can sustain such low prices. However, the US oil will survive this, but it will take few terrible years for them. US oil producers have started already making deliveries to the nation's emergency stockpile or the strategic petroleum reserve (SPR).
Moreover, the United States Oil Fund claimed it would get rid of its June oil contracts this week and reduce contracts for next months. Instead, the ETF will buy into longer-term oil contracts.
Next time before the expiry of the June contract the oil price will go to zero even faster than it did last time, according to the CEO of the largest tanker company, Nordic American Tanker.
Most analysts believe the oil industry will rebound when the coronavirus pandemic is over. Sooner or later we will see it.
On the 4-hour WTI chart we see a strong downtrend. The price reached the 50-day moving average on April 24 at the 17.50 mark and then went down. Maybe it will touch it again at the 15.15 mark and pull back after that. Resistance line is 20.20. Support line is 10.20.
China has issued new oil product export quotas to allow oil companies to send surplus barrels overseas, particularly Sinopec, which has the highest volume among quota holders. While the exact quota volume remains undisclosed, oil companies are forecasted to export approximately 3.5 million metric tons of clean oil products in September, a 10% increase from August.
Thanks to the incredible advancements in horizontal drilling and fracking technology, the United States has experienced a mind-blowing shale revolution. They've become the heavyweight champion of crude oil production, leaving Saudi Arabia and Russia in the dust. They even turned the tables and became net exporters of refined petroleum products in 2011.
Oil prices rebounded slightly on Friday but are still expected to show losses for the week due to concerns about slowing growth in the US and China. US crude futures rose 2.7% to $70.41 per barrel, while the Brent contract increased by 2.5% to $74.33 per barrel.
The past several weeks have been a real triumph for the bulls in the oil market. The Brent spot price grew by 8.5% during the last month.
Gold prices are rising for three consecutive days ahead of the Federal Reserve (Fed) interest rate decision, which is expected to remain unchanged due to declining inflation and a positive economic outlook. Investors are keen on the Fed's interest rate guidance, fearing a hawkish stance that could trigger market risk aversion.
Amid concerns of a Chinese economic slowdown, reports of declining investment often overlook China's efficient investment strategy in emerging sectors for long-term growth. China has taken measures to stabilize foreign and private sector investments, like reducing the reserve requirement ratio to boost investor confidence.
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