Oil prices have been in a recovery mode since Thursday. Brent crude attracted demand at multi-year lows and briefly jumped above the $30 important handle during the last trading day of the week. However, the futures failed to extend gains and retreated below $28, trading marginally above the opening price in the daily charts.
The local rally was due to a widespread recovery in risky assets after authorities across the world announced massive supportive measures to shield the global economy from a recession amid a rapidly spreading coronavirus outbreak. Against this backdrop, most stocks bounced after the recent sell-off, and oil followed suit.
On the other hand, there is no reason to expect a more sustainable rally in oil prices at this stage, as the developments surrounding the coronavirus remain negative, and OPEC countries and their allies don’t take any steps to support the market and stem the rout. As long as demand concerns prevail, traders will likely continue to sell Brent on rallies, which means the recent rebound could wane quickly and bring back the prices to long-term lows.
Oil markets need to see some decisive actions from the OPEC+ producers aimed at supply cuts to prevent further losses. The producers may resume their negotiations should the futures settle below $25, as all the members of the group need much higher prices to balance their budgets.
From the technical point of view, the $30 handle remains in focus and still acts as the immediate resistance for Brent. Once above, the prices will need to clear the $32.50 intermediate resistance that stands on the way towards the $40 barrier. On the downside, there is a risk of retesting the $25 level in the days to come. If the futures derail the $24.50 zone, the $20 handle will come into bears’ focus. But traders hope that the market will be able to avoid this scenario, and the barrel will soon see sustainable gains above the $30 level.