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Crude oil price forecast as Chesapeake Energy files for bankruptcy

oil prices
oil prices

Crude oil price is bouncing back as traders reflect on the decision by Chesapeake Energy to file for bankruptcy. They are also worried about the rising coronavirus cases that risk having an impact on demand at a time when it is starting to rise. The price of Brent is up by 0.10% to $40.90 while that of WTI is up by 0.05% to $38.50.

Chesapeake goes bankrupt

The biggest news in the crude oil price market is the Chesapeake Energy bankruptcy. The shale pioneer, which was once valued at more than $15 billion decided to go out of business because of the low oil prices and high debt. The recent rally in oil prices did not help the embattled firm, which was once the biggest shale producer in the world.

What does this decision mean for crude oil prices? It is complicated. In the short term, the bankruptcy could provide some support for crude oil prices because it will mean less supplies. However, most analysts were already expecting the company to go out of business as I had written before.

On the other hand, Chesapeake’s bankruptcy does not mean that its existing rigs will stay idle. In reality, the rigs will continue to be active at a time when the price of crude oil is rising. This is because by going out of business, it means that buyers of depressed assets will come in and buy the assets. This will see them remain active.

Coronavirus cases jump

Crude oil prices are also reacting to the surging number of coronavirus cases in the United States. Health officials identified more than 43,000 cases on Sunday, the highest number ever recorded. This brings the number of infections to more than 2.5 million.

And analysts expect the cases to continue rising in the near term. As a result, many states have suspended their reopening process. At the same time, the European Union has excluded the United States from its list of safe countries.

All this is important for crude oil price because it means that demand could take a longer period to come back.

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Crude oil price technical analysis

On the daily chart below, Brent crude oil price is trading at 40.96. This price is above the 50-day exponential moving average and below the 200-day EMA. The price is also along the ascending trendline, which connects the lowest levels on May 15, May 28, June 12, and June 24. The price is also slightly below the 50% Fibonacci retracement level. Therefore, there is a likelihood that Brent crude oil price will continue to rise as bulls target the 200-day EMA at about $50.

On the flip side, a move below $37.15 will invalidate this prediction. This price is at the intersection of the 50-day EMA and 38.2% retracement.