Crude oil price remains under pressure by worries over a new pandemic wave in China

Written by: Stanko Iliev
January 23, 2021
  • Crude oil price remains under pressure
  • If the price falls below $50, the next target could be around $45 support
  • American Petroleum Institute reported that the U.S. crude supply rose

The crude oil price has weakened more than 1.7% on Friday, pressured by a build-up in U.S. crude inventories and worries over a new pandemic wave in China. The price of crude oil continues to trade above the $50 support level, but rising Covid-19 cases and new restrictive measures could significantly reduce oil demand.

Fundamental analysis: A rise in Chinese infection numbers is a huge problem

New lockdowns worldwide and concerns over fresh COVID-19 outbreaks in China continue to worry investors. The recent pandemic restrictions in China will curb fuel demand in the world’s biggest oil importer, and all of these could send crude oil prices below $50 support again.

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The whole world has been facing the COVID-19 crisis for almost a year now; the business activity in Eurozone continues to decline while the situation in the U.S is not too much better. President Biden’s $1.9 trillion COVID relief proposal still keeps the market in a positive mood, but the main question is for how long.

“If we’re forced to keep the economy closed, and it takes longer than we want to get through immunizations and vaccinations for the coronavirus, that’s going to be a little rougher on the market than people apparently anticipated,” said Rob Haworth, senior investment strategist at U.S. Bank Wealth Management in Seattle.

A rise in Chinese infection numbers is a very big problem for the crude oil price, and if this continues, oil demand will decline even more in the first quarter of 2021.

It is also important to say that the American Petroleum Institute reported that the U.S. crude supply rose 2.6M barrels for the week that ended on January 15. This is the first increase since early December, and this also negatively influences the crude oil price.

OPEC has allowed increasing output by 500K bpd from January because it hoped that a vaccine would significantly raise demand, but new lockdowns would probably disrupt the situation again. Saudi Arabia announced a surprise production cut two weeks ago, and Saudi’s decision likely reflects signs of weakening demand as lockdowns return.

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Technical analysis: Crude oil price remains under pressure

The new restrictive measures could significantly reduce oil demand even more, and because of this, we can conclude that there is still no clear trend for oil prices.

Data source: tradingview.com

Crude oil has weakened from its ten-month highs, and if the price falls below $50, it would be a firm “sell” signal, and the next target could be around $45 support. The first resistance level stands around $55, and if the price jumps above this level, it would be a signal to buy crude oil, and we have the open way to $60. 

Summary

Crude oil price remains under pressure, and if the price falls below $50, it would be a firm “sell” signal, and the next target could be around $45 support. A rise in Chinese infection numbers is a very big problem for the crude oil price, while the American Petroleum Institute reported that the U.S. crude supply rose 2.6M barrels for the week that ended on January 15.