Benchmark WTI prices have had a much stronger session this week with prices recovering to highs of mid $51 from recent lows of $49. The recovery has largely been attributed to the recovery in global investor appetite over this week.
OPEC Cuts Demand Outlook
Investor uncertainty has been lower over the last month due to the ongoing spread of the corona-virus which has heavily impacted the global crude demand outlook. OPEC has now cut its oil demand forecasts for 2020. In China alone, OPEC forecasts crude demand to fall by around 20% due to the “demand shock” from the corona-virus outbreak which has caused a nationwide shutdown there as authorities attempt to curb the spread of the virus. The virus is continuing to spread globally though only 2 deaths so far have been recorded outside of China, raising hopes that the global impact will be more contained than in China.
WTI prices have fallen sharply over the year as the outbreak of the virus has rocked risk appetite around the world. Ove recent days, however, there has been a rebound in risk appetite with equities and commodities trading higher. China has reported that new cases of the virus have started to slow down, despite Monday recording the largest one day rise in the death till which jumped by 108 cases in China in one day.
OPEC Production Cuts To Be Increased?
The report released from OPEC this week noted that despite that most cartel members adhering to the terms of the production cuts, the cuts will no longer be enough in the face of the massive drop in demand as a result of the corona-virus outbreak. As a result of the latest report, the market now expects that OPEC will announce a further adjustment to its production restrictions when it meets next in March.
EIA Reports Inventories Rise
The EIA’s latest update this week has raised further concerns around the reduced global demand outlook for WTI. The report showed that US oil stocks were higher by 7.5 million barrels last week. Inventories have continued to rise over the last three-weeks as demand has sunk in the wake of the virus spreading globally.
WTI (Bearish below 55.95)
From a technical viewpoint. WTI is holding above the 50.50 support level for now though and with longer-term VWAP still negative, there is a risk of a continuation lower. However, with current price action suggesting the prospect of a reversal higher, a move back up to retest the broken bullish trend line and the monthly pivot around 55.95 could be seen.
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