Crude Recovers On COVID-19 Optimism

Benchmark WTI prices have risen over the week as the rebound in global investor appetite helped oil recover from earlier losses in the week. Negative headlines attached to the growing economic impact of COVID-19 were leaning on oil prices at the start of the week, seeing a broad risk-off tone to trading.

However, investor sentiment improved markedly mid-week in reaction to news that the spread of COVI-19 in China seems to be peaking. China reported that the number of news cases in the Hubei province, which has seen the worst of the outbreak, were down for two consecutive days. While the World Health Organisation has warned that it is too early to tell if the outbreak is dying out, investors seem happy to cheer the news with a relief rally across asset classes.

WTI has also been helped by news of fresh US sanctions on Venezuela also announced this week. The US announced that it is blacklisting a Russian subsidiary of Rosneft (Russian state oil) which has been key to helping Venezuela export oil. The new sanctions will not impact Venezuela’s ability to produce oil, but should make exporting the oil much more difficult. The US has accused Rosneft of conducting ship-to-ship crude transfers in a bid to obscure the identity of Venezuelan oil.

Expectations that OPEC will announced further cuts to production are also providing a bedrock of demand for oil prices. The heavy slide in oil prices over the last two months have put a renewed emphasis on the OPEC production restrictions which were last increased in December. When the group meets in March it is now expected that it will either look to extend or increase production cuts, or both, depending on conditions at the time.

EIA Report Delayed

The Energy Information Administration report will be released a day late this week, due to the holiday in the US, meaning oil traders will need to wait until later today to receive the inventories figure. Current projections forecast a further 3.5 million barrel increase in US inventories. Such a released might act as a headwind to the current rally in oil prices though broader risk sentiment remains the key issue currently.

Technical View

From a technical viewpoint. The rally in WTI crude has seen price moving back further above the 50.50 support. Price is now quickly approaching a retest of the broken trend line ahead of the monthly pivot at 56 which will be key to deciding near term price direction. A move higher will target the yearly pivot at 57.27 next.

The Crude Chronicles - Episode 26

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