CRUDE OIL FORECAST: OIL PRICE AT RISK OF FURTHER DOWNSIDE AS OPEC FALLOUT & CORONAVIRUS LOCKDOWN LINGER, EXACERBATE OIL MARKET SUPPLY-DEMAND IMBALANCE
- Crude oil price action hovers around $20.00 per barrel after crashing 70% from January’s high
- Oil prices have crumbled in response to coronavirus-driven recession risk and a breakdown in OPEC supply talks earlier this year
- Oil could face further selling pressure as demand for crude oil takes a nosedive alongside global GDP growth forecasts while tension between Saudi Arabia and Russia persists
A mind-boggling plunge in crude oil prices over the last three months has pushed the commodity about 70% below its most recent swing high printed on January 08. The sharp selloff in crude oil price action that began earlier this year – driven largely by the novel coronavirus outbreak (COVID-19) and rekindled recession risk – gained momentum after a breakdown in OPEC supply cut talks in March ignited an oil price war.
CRUDE OIL PRICE CHART: DAILY TIME FRAME (23 DECEMBER 2019 TO 01 APRIL 2020)
Chart created by @RichDvorakFX with TradingView
The nosedive in crude oil prices drove the commodity to down to the $20.00 handle – a level not seen in nearly two decades. Following an unprecedented wave of accommodative monetary policy intervention and fiscal stimulus measures, however, it appears that the steep slide in crude oil price action has steadied alongside an apparent recovery in investor sentiment.
| Change in | Longs | Shorts | OI |
| Daily | 8% | -7% | 3% |
| Weekly | -8% | 7% | -4% |
From a technical perspective, the impending Bollinger Band squeeze might suggest selling pressure has subsided, which may facilitate a retracement higher. Yet, while crude oil might have potential to put in a fresh bottom around this psychologically-significant area of confluence, the risk of additional downside still looms.
CRUDE OIL PRICE CHART: MONTHLY TIME FRAME (APRIL 1998 TO APRIL 2020)
Chart created by @RichDvorakFX with TradingView
The possibility that crude oil price action takes another hard tumble warrants serious consideration seeing that a recession is likely unavoidable. Furthermore, with major oil producers like Saudi Arabia and Russia still flooding the market with crude, which is exacerbating the already-stark supply imbalance amid oil demand destruction, the price of crude oil could plunge below the $20.00 mark.
If crude oil drops below $20.00, the commodity could quickly target the 2001-2002 lows near $17.10, which may be eyed by bears before the December 1998 low around $10.65 comes into focus. On that note, upcoming weekly jobless claims and monthly nonfarm payrolls data, might serve as additional fundamental catalysts that drive the commodity’s next direction.
Keep Reading: Crude Oil Price Drives Lower with S&P 500, VIX Snaps Back
-- Written by Rich Dvorak, Junior Analyst for DailyFX.com
Connect with @RichDvorakFX on Twitter for real-time market insight
