Crude oil is down for a second straight day as investors remain cautious about the rising number of coronavirus cases in the United States and elsewhere. Investors are also concerned about the rising inventory numbers from the United States. The price of Brent and West Texas Intermediate (WTI) is at $39.96 and $37.7, respectively.
Demand concerns emerge
Early this week, crude oil price rose sharply after Markit reported positive manufacturing and services PMI numbers. The data showed that most countries, except Japan, had started to make progress in June. As a result, most investors in the oil market started to price-in more demand for crude oil.
They were right that the economy was recovering but they were wrong about the risks posed by coronavirus. Recent numbers show that the US economy is extremely vulnerable. For example, the country has confirmed more than 68,000 new cases in the past two days alone. And health officials, including Dr. Anthony Faucci, have warned that the number of cases will continue to rise in the next few weeks.
More coronavirus cases complicate crude oil price in two ways. First, it increases the likelihood that more states will start issuing new stay-at-home orders. These orders mean that the demand for crude oil will remain lower. Second, it means that global travel will remain weaker for longer. Indeed, EU countries and China have said that they will not accept American flights until the country addresses the disease.
Meanwhile, the rising crude oil inventories in the United States will not help. Yesterday, data from EIA showed that inventories rose by more than 1 million barrels in the previous week. That was in line with a previous number by API.
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Crude oil price technical analysis
The daily chart below shows that Brent crude oil price formed an evening star pattern on Tuesday this week. It dropped yesterday and is also dropping today. The price is now at 39.97, which is along the 50-day exponential moving averages. It is also between the 50% and 100% Fibonacci Retracement level. Also, the price is along the support of the ascending channel shown.
As such, a break below the current support will be critical. If it moves below the price, it will mean that bears are now in control. This will see it attempt to test the 38.2% retracement at 37.00.
On the flip side, a move above the 50% retracement at 43.52 will see crude oil price continue to rise.
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