Crude oil price falls at $40 on the surge in new coronavirus cases

Crude oil price falls at $40 on the surge in new coronavirus cases
  • The number of new COVID-19 infections around the globe is on the rise again
  • "Markets have got ahead of themselves and with the coronavirus pandemic still doing the rounds" - analyst
  • Crude oil price fails to stay above $40, rotates lower to close the week in the red

Crude oil price closed over 2% in the red despite posting the 3-week high above the $40 mark. Investors are worried that the surge in the number of new coronavirus cases will slow down the economic recovery.

Fundamental analysis: Infection cases on the rise again

Crude oil price closed this week at $38.17, down 2.28%. This is despite prices trading above the $40 handle in the mid-week on hopes of a V-shaped economic recovery.

“Markets have got ahead of themselves and with the coronavirus pandemic still doing the rounds, there remains plenty of volatility on the horizon,” PVM analysts said. 

Yesterday, the US reported the highest number of infections in a single day as at least 40,173 new cases were registered. As a result, at least nine states have announced they halted reopening plans.

“To one extent or another, the volume of new cases coming in is a reflection of a great success in expanding testing across the country,” Vice President Pence said.

Energy investors are fearing that a rising number of cases will make Florida and Texas, some of the biggest oil consumers could stall the demand for recovery. The latter reported nearly 6,000 new cases on Thursday, in addition to 5,707 cases on Friday. 

“At this time, it is clear that the rise in cases is largely driven by certain types of activities, including Texans congregating in bars,” Texas Governor Greg Abbott said.

Shares of major oil companies, such as Repsol and Petrofac, have also turned negative on the week.

Technical analysis: Crude stalls at $40

The $42 mark was always a major target for the bulls. More than two months after crude oil price printed negative values for the first time in history, the prices have returned to $40s. This zone used to be a 4-year low that capped multiple attempts to break lower. 

Crude oil weekly chart (TradingView)

Its break in March accelerated losses as the price had quickly moved to $19. Since then, the recovery has been successful as the buyers returned to the key line above $40. However, the sellers used this opportunity to get on the short side again and force a weekly close below $40. 

Looking lower, the next target is $35.20 while the $42 handle will continue to be a key battlefield for investors trading oil

Summary

Crude oil price failed to break the critical multi-year resistance at $42, which prompted the price action to rotate lower. Investors’ concerns are growing as the number of new COVID-19 cases keeps rising.

By Michael Harris
Specialising in economics by academia, with a passion for financial trading, Michael Harris has been a regular contributor to Invezz. His passion has given him first hand experience of trading, while his writing means he understands the market forces and wider regulation.
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