Crude oil price dropped as investors continued to worry about supply and demand. On supply, investors are worried that Saudi Arabia has not yet responded to Mike Pompeo’s pressure to stabilize the oil markets. The silence of the Saudis means that the country is willing to let oil prices fall in the near term.
Investors are also worried about storage. Media reports have been warning that onshore oil storage facilities could run out in the next few weeks if oil producers continue to ramp-up production. In a statement last week, the head of the France-based International Energy Agency (IEA) told Fortune that, “Sometime very soon, we may have the global oil storage capacity be completely full.” This scenario would be unprecedented.
All this is happening at a time when there is no demand for oil. Most airlines, which are major consumers of crude oil, have reduced their flights schedules dramatically. Transport in most cities has halted as more people work from home. These cities have also implemented partial or full-lockdown to counter the disease.
Meanwhile, US producers, who are being targeted by Saudis and Russians are struggling. On Friday, data from Baker Hughes showed that the companies slashed the number of rig counts by 44 in the past week. This was the biggest drop in more than 4 years.
As at 04:25 GMT, Brent crude oil is down by more than 4.22% to $26.80 while West Texas Intermediate (WTI) is down by more than 4.32% to $20.58.
On the four-hour chart, we see that the WTI crude oil price is finding support at about $20, where it has formed a double bottom. The pair has also formed a descending triangle pattern as shown below. With the triangle pattern nearing the tip, there is a likelihood of a big breakout happening soon. I expect the pair to move below the psychological level of $20, and possibly head to $15.