Oil Demand Cratering

The WTI markets has seen another round of selling this week as the global situation continues to draw concern for the demand outlook. The rebound in risk assets over the prior week has stalled this week as news of a soaring US death toll, and expectations of an extension to the lockdown there, hit risk sentiment.

Risk sentiment had been lifted over the last week due to the co-ordinated actions announced by central banks. However, momentum has waned this week and many indices have turned lower again, pulling oil prices down with them. In the US, the COVID-19 death toll has exceeded 5000 now with the country suffering its worst one-day spike in the death toll of 884 victims. This was accompanied by similar record increases in the death toll in Spain and the UK which saw 864 and 563 deaths respectively.

EIA: 10th Consecutive Weekly Inventories Build

Wit the virus still raging across the globe, the impact on oil demand has been severe. In the US this week, the Energy Information Administration reported a tenth consecutive weekly inventories surplus, noting an increase of 13.8 million barrels over the prior week.

The massive travel restrictions in place around the world, as well as the inherent drop in customer demand, has caused huge disruption for the airline sector. Typically seeing the second highest level of demand for oil, the disruptions in this sector have been critical for oil prices. British Airways announced this week that it is grounding its entire fleet due to the current disruption, following similar announcements from Easy Jet and other airline providers.

The widespread shutdowns which have been implemented across the globe in efforts to stop the spread of the virus have also caused a significant drop in oil demand from the manufacturing sector and the transport sector alike. Manufacturing PMIs for the UK, Eurozone and the US have all seen moves back into contractionary territory last month as a result of the disruption caused by the virus. In the US, there are concerns that the summer driving season, which is typically a period of high demand for oil, will be negatively impacted this year if the lockdowns continue.

Technical View

WTI (Bearish below $26.05, bullish above)

From a technical viewpoint. WTI prices are still holding below the $26.05 level which was broken recently. This is a major level for oil an while below here a drop down to the $17.10 level is seen. However, price action is starting to reflect a loss in downside momentum and if price can recover the $26.05 level, we could see a further recovery higher, with the monthly pivot at 29.47 the next level to watch.

The Crude Chronicles - Episode 32

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