Oil prices continue to grind lower at the start of the week, suffering aggressive losses amid a broad-based risk aversion in the global markets due to the persisting concerns over the China coronavirus spreading outside of China. Against this backdrop, Brent is trading 4% lower on Monday, having received support around $55.50. Last week, the futures were rejected from local highs around the $60 psychological level.
It looks like Brent will remain on the defensive until market participants start seeing the situation with virus improving in China as well as in South Korea, Japan and Italy. Today, Italy reported a third death from the coronavirus and 150 infections. The rising number of cases fuels worries about the outlook for oil demand globally thus making Brent unappealing for buyers at this stage.
It is possible that the market will see a deeper retreat before the bulls reemerge once concerns over the consequences from the virus spreading start to abate. On the downside, there is a minor support around $54.80. Once below this level, the recent lows at $53 will get back in traders’ focus.
Meanwhile, Baker Hughes reported on Friday that the oil rig count increased for a third straight week, to 679, the highest since December. As such, the release added to the bearish picture in the oil market at the start of a new trading week. Traders need to see signs of a declining activity in the US shale oil fields, including production, to push the prices higher.
In the short term, Brent needs to hold above the $55 handle in order to avoid a deeper correction following the recent rally witnessed on the improved risk sentiment which turned out short-lived. To regain the upside momentum, the futures need to get back above the $57.50 area so that to retarget the $60 psychological level. Apart from the coronavirus theme, traders are closely monitoring the developments surrounding the OPEC+ decision, with the lingering uncertainty on this front makes oil traders unnerved.