Oil prices managed to bounce from the recent long-term lows registered last week below $25, but the recovery impetus remains too weak to call a bottom and bet on further gains, at least in the short term. Brent struggles to get firmly back above the $30 handle, changing hands around $29 on Thursday.
It looks like oil traders at the crossroads now, as there are several driving forces in the market these days, making it difficult to make trading decisions. However, in a wider picture, risks are still skewed to the downside, as the outlook for global energy demand remains ugly amid the continuing spread of the coronavirus. In these circumstances, the market needs decisive support from OPEC+ countries but instead of this, major exporters are planning to increase production in a price war after the deal fell apart.
At the same time, Brent refrains from deeper losses at this stage due to massive stimulus packages being delivered by authorities in many countries amid the coronavirus outbreak and the growing threat of a deep global recession. Of note, this positive driver could wane quickly if investors start to doubt the efficiency of the measures taken by the governments and central banks. In other words, the support from this front may turn out a short-lived one, suggesting the downside risks will persist in the oil market.
In the short term, Brent may stay afloat due to widespread weakness in the dollar, but the futures won’t be able to stage a more or less sustainable bounce from the current levels if risk sentiment deteriorates further.
From the technical point of view, the prices now need to hold above $27.50 so that to avoid more aggressive losses. Only above $31 Brent may attract more buyers and retarget the $36 area. So far, it looks like the consolidation will continue for some time before the market finds a clearer direction. The flat daily RSI confirms this view as well. Anyway, bearish risks continue to prevail at the moment.