Crude oil prices have continued to move lower in the last two days on the renewed fears of coronavirus-led concerns over the global economy. The price action is now threatening to clear the key support at $50.
Fundamental analysis: All eyes on OPEC
Concerns over the coronavirus outbreak, which may cause a global economic slowdown, have continued to drag the crude oil prices lower. The strong US jobs, which traditionally provided a boost for the oil prices, failed to offset concerns from the coronavirus.
As a result, commodity investors are waiting to see whether the Organization of the Petroleum Exporting Countries (OPAC) will make the decision to cut the supply in order to boost global oil prices.
“The U.S. economic data doesn’t matter at all [Friday] and it is clearly reflected in the oil prices. [We’ll see whether OPEC is] going to do anything with respect to the supply—we need a supply cut. The threat to the demand equation is huge from the coronavirus’ impact, and this is where major concerns are,” said Naeem Aslam, chief market analyst at AvaTrade.
Two days ago, a Joint Technical Committee of OPEC+ (OPEC plus its allies) recommended cutting oil production by 600,000 barrels a day. According to their plan, OPEC and its allies should start cutting in April, and continue through June.
OPEC+ ministers are scheduled to meet on March 5-6. Previously, Russian officials said they expect a drop of between 150,000 and 200,000 barrels per day on the back of the coronavirus outbreak in China.
Technical analysis: Bears preparing for an assault on $42
Since the oil prices surged in early January after the U.S. assassinated the top Iranian commander, there has been a continuous pressure to the downside. As a result, a fresh 1-year low was created earlier this week.
It is clear now that this surge had been used to add more selling pressure from the higher levels. A break of the key short-term support at $50 should open the road for a test of a 3-year low at $42.40. However, the bears will have to clear the major support around the $48 mark, where the multi-year ascending trend line is trading.
Any close below $50.60 on a weekly basis is likely to open the road for a trip further lower. Hence, investors will be observing tonight’s close with watchful eyes to see whether the basis has been created for another leg lower.
Crude oil prices continue to print lower levels on coronavirus fears and increased supply. The bears are targeting the support at $48 before a potential trip to the 3-year low around the $42 handle.