Oil prices failed to stay afloat and had to decline along with global stocks on Thursday. The market feels the pressure from the coronavirus outbreak that has led to a weaker demand across the globe. Earlier this week, Trump imposed a 30-day travel ban from most of Europe, which added to the gloomy picture on the demand side.
Meanwhile, according to some sources, the OPEC+ technical meeting scheduled for March 18 was canceled. A few members of the cartel are also reportedly planning to ramp up production next month which could lead to a full-blown price war. Against this backdrop, there is a low chance that oil prices will manage to stage a sustainable recovery in the foreseeable future, as there are too many bearish drivers in the market at the moment.
On the other hand, there are already signs that US shale producers start to cut their budgets amid low prices. As a result, shale oil output and the drilling activity may decline in the coming weeks, which is positive for prices. Of note, in its short-term energy outlook report released earlier this week, the US Energy Information Administration cut its 2020 outlook for US crude oil production.
Still, it’s not enough to mitigate all the above-mentioned bearish factors, so the downside risks continue to prevail in the market. Moreover, Brent may fall even lower in the medium term should the coronavirus continue to spread globally, further undermining demand outlook.
From the technical point of view, the important local support arrives at $32.50, as a break below it will open the way towards the $31 figure. On the upside, Brent needs to overcome the $36.50 level so that to target the $40 key resistance. As long as the futures remain below this barrier, bearish impetus persists. In a worst-case scenario, Brent may get below the $30 psychological handle before the market proceeds to a recovery. In other words, it’s still too early to call a bottom.