Crude oil price reversed gains as investors started to worry about demand as tensions between the United States and China. Nonetheless, the price found some support from a relatively bearish report by the International Energy Agency (IEA).
US and China tensions rise
The US and China are the two biggest economies in the world. Whenever they fight, it sends a shockwave to the global economy. That is because of the amount of power they yield internationally. For example, China is the biggest consumer of most items, including crude oil.
As you recall, crude oil price failed to rise to 2013 highs last year because of the trade war. Now, the two countries are flexing muscles. On the one hand, the US has accused China of not being transparent about the coronavirus pandemic. China has rejected this accusation and demonstrated that it did provide early warning.
China increased tensions on Friday, when it announced about its intentions to bypass Legco in Hong Kong and implement its security laws there. In response, the Trump administration has said that it will sanction some of the most powerful individuals in China. Trump has also mulled about adding some tariffs on the country. All this will not be positive for crude oil price.
IEA report provides some support
In a report earlier today, IEA said that investments in the energy sector will fall to the lowest levels in modern times. That is because many oil and gas companies are now making losses, with the price of crude oil lower by more than 30% this year alone. In fact, companies like BP, Shell, ExxonMobil, and Chevron have all slashed their spending. Others like Diamondback have left the industry all together. Similarly, the number of oil rigs in the US has continued to decline.
In total, IEA estimates that energy investment has declined by almost $400 billion this year. This supports oil prices because it reduces the amount of oil that is supplied.
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Brent crude oil technical outlook
Brent crude oil price is trading at $35.5. On the daily chart, this price is slightly below the 38.2% Fibonacci Retracement level. It is also slightly above the 50-day EMA and slightly below the 100-day EMA. Therefore, even with the today’s decline, the price remains in an overall bullish trend. This trend will remain so long as the price breaks above the 38.2% retracement level of $37.36.
On the flip side, a move below $33.9 will invalidate this trend. This price is along the 50-day EMA. It will signal that there are more bears in the market who will want to push it to the 23.6% retracement of $29.30.
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