Crude Oil Price Forecast:
- Coronavirus fears helped spark a crude oil price war that has seen the commodity plummet
- Despite the Trump administration’s efforts to buoy price, a larger recovery remains unlikely
- Prolonged crude oil weakness will continue to weigh on US shale producers
Crude Oil Price Climbs off the Lows but Recovery Remains Unlikely
Crude oil opened near the $28 mark on Monday before cautiously moving off the lows as other risk-sensitive assets like the Dow Jones and S&P 500 crept higher simultaneously. That being said, it can be argued early price action in the commodity is rather underwhelming given the actions taken by the Federal Reserve, US government and other major central banks over the weekend, but it may help highlight why such action was necessary.
Crude Oil Price Chart: Weekly Time Frame (June 2016 – March 2020)
In an attempt to buoy the global economy and asset prices, the major central banks issued a series of emergency measures while the Trump administration announced plans to buy vast quantities of crude for the country’s strategic supply. Nevertheless, it seems the proactive measures were only able to slow the bleeding and not entirely reverse the trajectory of the impacted assets.
| Change in | Longs | Shorts | OI |
| Daily | 3% | -5% | 0% |
| Weekly | -14% | 14% | -7% |
Therefore, crude oil is likely vulnerable to further losses at the current valuation as investors readjust their outlooks for the global economy and demand profile of the commodity. To be sure, support around the $27.46 level could prove crucial in the days ahead as crude looks to fend off a trip beneath the 2016 lows. Should it fail, subsequent support is sparse until the 2003 low at $24.50.
Further insight on the commodity’s price outlook might be offered at the upcoming Federal Open Market Committee meeting, but the Fed has fewer options at its disposal following recent moves so bullish catalysts are limited. In the meantime, and for the foreseeable future, low crude oil prices will weigh on the US shale industry which has seen the value of high yield corporate debt deteriorate alongside the XLE Energy ETF. As crude searches for a bottom, follow @PeterHanksFX on Twitter for updates and analysis.
--Written by Peter Hanks, Junior Analyst for DailyFX.com
Contact and follow Peter on Twitter @PeterHanksFX
