Crude oil price nosedives as demand jitters send shockwaves globally
- Crude oil price declined today because of the rising threats of a second wave of the pandemic.
- Brent is down by more than 1.30% while West Texas Intermediate is down by 1.85%.
- The price fell even as data showed that oil rigs in the US dropped to lowest level in ten years.
Crude oil prices are down significantly today as investors worry about global demand after China confirmed a new cluster of coronavirus cases in Beijing. The price of Brent, the international benchmark, declined by 1.30% while the West Texas Intermediate (WTI) fell by 1.85%.
Similarly, other commodities declined, with the Bloomberg Commodities Index falling by more than 0.70%. Also, global stocks fell, with the DAX index, FTSE 100, and CAC 40 falling by 1.72%, 1.45%, and 1.50% respectively. Futures tied to the Dow Jones are off by more than 600 points.
Coronavirus cases rise in China
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Crude oil price fell after China announced more coronavirus cases. Earlier today, the country announced new 36 cases in Beijing, bringing the total new cases reported to 80.
According to the National Health Commission, the new cluster of cases are linked to Xinfadi market. This is a popular seafood market located in the southern side of Beijing, Chinese capital.
As a result, the country has started putting in place “wartime measures” to prevent the disease from spreading. It is doing this by announcing strict lockdown measures and initiating mass testing. By yesterday, authorities had tested more than 76,000 people.
The goal is to halt the disease from spreading and boosting confidence at a time when the country’s economy is recovering.
Earlier today, data from China showed that fixed asset investments, industrial production, and retail sales improved in May.
Meanwhile, in the United States, there are fears that a second wave of the virus has started even as states starts to reopen. According to Reuters, new cases have started to increase in states like Florida and Texas. And analysts believe that the cases will shoot-up this week following two weeks of protests.
Crude oil price is sensitive to these issues mostly because of demand. As cases rise, cities will put more restrictions, which will hinder demand. It also means that the vulnerable air traffic industry will take a longer period to recover.
US oil rigs fall
The decline in crude oil price today came even as Baker Hughes reported relatively bullish oil rigs data. The numbers showed that active rigs in the US dropped to 199 from the previous 206. This was a significant decline from January when the total oil rigs in the US were more than 600.
Most importantly, the rig count is at the lowest level it has been since 2009. Total rigs, which includes those producing natural gas, declined to 279. In Canada, active rigs remained unchanged at 21.
Another crude oil-related news was from British Petroleum (BP). In an update to investors, the oil supermajor said that it would slash its value of assets by up to $17.5 billion. This is almost 20% of its total market value.
In the statement, the firm blamed the current crude oil price and its transition to clean energy. It now expects that the price of crude oil will average about $50 in the longer term, down by 30% from the previous estimate.
Brent crude oil price technical outlook
On the daily chart, crude oil price formed an evening star pattern on June 8, when it reached a high of $43.53. This price was also along the 50% Fibonacci retracement level. At the current price of $38.18, the price is slightly below the 100-day exponential moving average and slightly above the 50-day EMA. It is also slightly above the 38.2% retracement level.
With bears now in control, the implication is that the price may continue falling. A move below the 38.2% level of $36.50 will see the price target the support at $30. On the flip side, a move above the 50% retracement at $38 will invalidate this thesis.