Corona-Virus Optimism Helps WTI Recover

The main catalyst behind the movement in oil markets this week has been the developing situation with respect to the corona-virus outbreak in China. The spread of the virus, which has now killed around 565 people and infected over 28,000, has seen a sharp rise in investor uncertainty which leaned on risk appetite earlier in the week. With aviation companies suspending certain routes, and travel restrictions in place around the Chinese Lunar New Year, the oil demand outlook has been reduced.

Along with the travel restrictions in place, the country-wide lockdown in China which has seen most factories and work-places closed. This means a huge loss of productivity and consequently, much less demand for oil. Bloomberg reported that Chinese oil consumption has fallen 20% over the last. Prices. As China is the largest global importer of oil, this reduction in demand has hit oil prices hard over the last two weeks. were already in decline following the cooling of tensions between the US and Iran and have shed around $15 over the last month.

Across the middle of the week, however, there was a clear shift in investor behaviour. Risk markets began to recover on reports that Chinese researchers were close to confirming a vaccine for the virus. Equities and commodities prices rallied steadily over Wednesday with WTI trading back into positive territory on the week. However, the World Health Organisation has downplayed the hopes around finding a cure saying that it is still early stages. These comments tempered gains, though oil remains well bid into the later part of the week.

EIA Reports Inventories Build

On Wednesday, the EIA reported a further rise in US WTI inventory levels which increased by 3.4 million barrels over the final week of January. The comes on the back of a 3.5 million-barrel increase over the prior week and puts further focus on the demand concerns in the oil market at the moment. However, for now it seems oil traders are looking beyond the report and focusing on the current optimism that a corona-virus cure will soon be found.

Technical View

Crude Oil (Bearish below $56)

From a technical viewpoint. The sell-off in WTI tested below the $50.50 level, which has been a major support level over the last year. However, price has reversed firmly back above the level now and current price action suggests scope for a further correction higher. With price still well below the monthly pivot at $56 and longer-term VWAP negative, the correction could lose steam into a retest of the broken bullish trend line, or the yearly pivot above at $57.30, if it makes it that far.

The Crude Chronicles - Episode 24

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