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

Oil price plunge as COVID-19 cases surge in the US and Europe
Written by:
Stanko Iliev
15th November, 14:46
  • The number of active oil rigs in the US increased by 10 to 236
  • Libya has boosted its oil production to 1.2 million barrels per day
  • Rising COVID-19 cases could add another pressure to the price of oil

The price of crude oil has advanced above $43 last trading week and the current price stands around $40. Crude oil remains under the pressure by growing fears that new restrictive measures could significantly reduce demand for oil.

Fundamental analysis: Rising COVID-19 cases could add another pressure to the price of oil

Oil price finished the week above $40 but continue to seesaw between covid concerns and vaccine hopes. It is important to say that oil has advanced above $43 last trading week on the announcement that Pfizer’s coronavirus vaccine was 90% effective.

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The oil rally faltered on Wednesday as the surging cases of COVID-19 in Europe and US revived fears about the impact of lockdowns on global demand. Baker Hughes reported that US oil rigs increased for the eight-consecutive week and the number of active oil rigs in the US increased by 10 to 236.

The attention of investors is focused currently on the US stimulus aid package negotiations and on the situation with COVID-19 pandemic. COVID-19 cases in the US continue to rise while Europe is not faring any better with this pandemic.

The US reported over 180K new cases in one day and the pandemic pushed U.S. hospitals to the brink of capacity. This is certainly not good for the economy and this could add another pressure to the price of oil.

The coronavirus crisis has already reduced global oil demand and OPEC made a decision to limit production until December. Oil price is also pressured by the announcement that Libya has boosted its oil production to 1.2 million barrels per day.

There is still no clear trend for oil prices but analysts stay “bullish” on oil and most of them are expecting an increase in oil prices for the next several months (a slow but steady rising of prices).

Technical analysis: Bears are focused on breaking the support level at $40

Data source: tradingview.com

On this chart, I marked important resistance and support levels. The important support levels are $40 and $35, $45 and  $50 represent the resistance levels.

If the price jumps above $45 it would be a signal to buy oil and we have the open way to $50. 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

Baker Hughes reported that US oil rigs increased for the eight-consecutive week and the price is also pressured by growing fears that new restrictive measures could significantly reduce demand for oil. The US reported over 180K new cases in the one day and the pandemic pushed U.S. hospitals to the brink of capacity. This is certainly not good for the economy and this could add another pressure to the price of oil. Oil price is also pressured by the announcement that Libya has boosted its oil production to 1.2 million barrels per day. There is still no clear trend for oil prices but analysts stay “bullish” on oil and most of them are expecting an increase in oil prices for the next several months.

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