On Tuesday, oil prices manages to trim yesterday’s losses partially. Following a plunge by over 25%, Brent has bounced from lows marginally above $31 and challenging the $37 figure today. Russia’s decision to exit the OPEC+ deal shocked the markets, sending all risky assets lower across the board at the start of the week. Moreover, in retaliation, Saudi Arabia announced discounts for its oil and said it will increase oil output starting from April. It’s not surprising that Brent crude saw a massive plunge on the news.
Today, the futures staged a recovery amid rising hopes that global authorities will take massive supportive measures to help the economy avoid a recession amid cheap oil prices and the spreading coronavirus that hurts business activity, demand and sentiment across the globe. Of note, Trump said on Tuesday that the government will consider substantial economyс relief measures amid the coronavirus outbreak. Other countries could follow suit in the coming weeks, while central banks, including the Federal Reserve, may easy monetary policy further.
In the near term, the upside potential in the oil market will likely remain limited anyway as traders continue to assess the consequences from Russia’s steps amid the rising number of coronavirus cases across the globe. Moreover, the downside risks for oil prices still come from the US shale oil fields, with rising inventories and output could further undermine prices during this difficult period. Later today, the API reveals its weekly report, followed by the official release from the EIA due on Wednesday. Should the figures disappoint, Brent may retreat again.
From the technical point of view, oil prices need to firmly regain the $37 figure in the short term. A daily close above this level will open the way towards the $40 level. The daily RSI has reversed north following the recent bounce but remains in the oversold territory, suggesting there is still upside potential in the near term.
Anyway, the possibility of a more robust rebound will depend on the general market sentiment. In other words, should risk aversion resume, Brent may get back below $35 and even challenge fresh lows, including the $30 psychological level. In such a scenario, oil-producing countries may discuss some measures to support the prices and save their budgets.
