The West Texas Intermediate Crude Oil market initially rallied during the trading session on Tuesday to fill the gap from the Monday open. Ultimately, this is an area that should cause a bit of resistance, because the market obviously sees some volatility in volume to form that gap. Furthermore, there is a lot of concern about global demand in crude oil which is going to continue to suffer as long as there is a serious lack of demand and of course there will be as long as the coronavirus slows down economic movement.
Looking at the chart, I see the $20 level as crucial, and the fact that it has held over the last couple of days is rather interesting. I think given enough time if we break down below there it probably opens up a move towards the $17.50 level, maybe even the $15 level. That being said, the day did get a little bit of a part due to Trump and Putin suggesting that the two countries would talk about the oil markets. Having said that, we could get a bit of a pop in the short term, but I do think that markets will probably continue to offer selling opportunities on rallies. The $25 level above will be rather resistive and so will the $27.50 level. After that, the market is likely to go towards the $30 level where there should be even more resistance.
Oil will eventually rally and try to fill the gap towards $42, but we need the coronavirus to slow down and of course the price war to end between Saudi Arabia and Russia. While the Americans and the Russians talking certainly helps, it doesn’t do anything about the overall demand which of course is something that is almost impossible to change at the moment.
What we are looking at is a scenario where we need the rate of infection to slow down in the United States and Western Europe, followed by an into the price war between Saudi Arabia and Russia to even begin to start buying. The peak infection rate in the United States is expected to be in about three weeks, so we probably have some sideways action in the short term. In order to prepare for the eventual bounce, I have started to buy shares of USO, which is the United States Oil Fund, an ETF. I fully anticipate that the market will probably pull back against it a bit, but this is more or less a longer-term play. As far as levered to crude oil is concerned, it is probably best a “hold” at this point and not a buy or sell.
