Oil price plunge as COVID-19 cases surge in the US and Europe

The price of crude oil has weakened from $39.8 below $35 this trading week and the current price stands around $35.7. Baker Hughes reported the sixth consecutive weekly increase in US oil rigs and the price is also pressured by growing fears that new restrictive measures could significantly reduce demand for oil.

Fundamental analysis: New restrictive measures could significantly reduce demand for oil

Crude oil has weakened on Thursday below $35 pressured by growing fears that new restrictive measures could significantly reduce demand for oil. The coronavirus crisis has already reduced global oil demand and OPEC made a decision to limit production until December.

It is also important to mention that Baker Hughes reported that the number of active oil rigs in the US increased by 10 to 221 which adds concerns about an oversupply. Demand for oil has also weakened as air travel remains restricted and according to some reports the global flights were down by 26% from year-prior levels.

COVID-19 cases in the US continue to rise while Europe is not faring any better with this pandemic. This is certainly not good for the economy and prices of crude oil will be connected with the global economic outlook.

Russia and Saudi Arabia had the idea of extending the current output cuts of 7.7 million barrels a day into next year but producers are divided about this. The oil price has entered into a "bear market" despite the fact that analysts stay "bullish" on oil and most of them are expecting an increase in oil prices for the next several months.

The attention of investors is also focused currently on the US stimulus aid package negotiations and the upcoming presidential elections. The US presidential elections will be on November 3 and according to the polls, US President Trump’s rival, Joe Biden, leads.

Technical analysis: Bears remain in control of the price action

On this chart, I marked important resistance and support levels. The important support levels are $35 and $30, $40 and  $50 represent the resistance levels.

If the price jumps above $40 it would be a signal to buy oil and we have the open way to $45. Rising above $50 supports the continuation of the bullish trend and the next price target could be located around $55.

On the other side, if the price falls below $35 it would be a "sell" signal and we have the open way to $30.

Summary

The price of crude oil has weakened 10% on a weekly basis as the release of the Baker Hughes oil rigs data has failed to offer support. Baker Hughes reported the sixth consecutive weekly increase in US oil rigs and the price is also pressured by growing fears that new restrictive measures could significantly reduce demand for oil. Bears remain in control of the price action and if the price falls again below $35 that would be a strong "sell" signal.