Crude Oil Prices May Break Below $50 in February

Crude oil prices are down nearly 16% in January, which is the biggest January slide since 1991 for the “black gold”. The price action is now closing down on the key support around the $50 mark.

Fundamental analysis: Coronavirus death toll rises above 200

Crude oil prices keep dropping lower on the fears that the worst is yet to come from coronavirus. Investors are concerned that the global economy will increase the slowdown due to concerns that the virus may spread globally.

“The market is betting that the worst is yet to come. As psychological fears give way to on-the-ground reality of sustained oil demand, oil prices will revert back to pre-coronavirus levels,” says Manish Raj, chief financial officer at Velandera Energy.

China is the world’s second biggest economy and the spread of coronavirus isn’t helping the demand for oil. Moreover, winter is traditionally a difficult time of the year for oil producers as demand decreases.

“There isn’t a compelling case crude needs to go lower until we know more about how bad the demand destruction from the coronavirus epidemic is going to be,” said Stratfor oil analyst, Greg Priddy.

The number of infected persons in China has climbed to almost 8,000, while the latest updates show that the death toll is now at 213. In the meantime, airline companies continue to suspend or reduce the number of direct flights to major cities in China.

It seems that the crude oil bulls can’t catch a break as the latest data from the United States shows that crude stocks rose by more than seven times the market expectations.

Technical analysis: Approaching key support

Crude oil prices trade nearly 16% lower this month, which marks the worst month for the bulls since November ‘18. Things could get much worse if the bears are successful in their attempt to penetrate through the absolutely crucial support in the area of $48.50 – $50.50.

The “black gold” now trades below both the 100-WMA and 200-WMA, both very important technical indicators. As seen in the chart, the price now approaches the horizontal support (the blue line), and the ascending trend line (the red line). Both connect important data points in the past couple of years.

Any rebound higher should be capped by $55.50 where the 200-DMA is located. Given the importance of the support area, it is likely that the bulls will defend it, at least in the first attempt. Still, the near-term risk is to the downside.

Summary

Crude oil prices have moved lower in the past few weeks on the fears of further coronavirus outbreak. The commodity lost nearly 16%, which marked the worst January in the last 30 years. More importantly, the bears are now closing in on the key support near the $50 handle.