The oil market in March 2020
Recently, the behavior of the oil market has been provoking as many questions as exclamations – the whole range of human emotions. In March 2020, oil prices experienced perhaps the most stressful time in the last years. The hard times are not over yet. However, now it is high time to find out what is going on.
The clear catalyst that initiated the falling of the quotations was the collapse of the OPEC+. At the meeting in Vienna in March, everything went wrong: Russia refused to approve of the extended agreement on the freezing of crude oil production, and Saudi Arabia refused to communicate and assume the great part of the work, as usual. Other participants remained silent, but this time their silence was critical. As a result, starting April 1st, the OPEC+ states are not limited by any agreements: each country may produce as much oil as it wants.
The influence of the coronavirus on the oil market
Another factor of pressure on oil prices is the coronavirus. It came from China, the main importer of crude materials in the world. Logically, with the massive slow-down of industry and a steep decline of consumption, demand for energy carriers in China dropped. China reacted by an instant decrease in the volumes of oil imported, which, naturally, influenced oil prices. The global market was sluggish, and the prices fell. The first Chinese statistics in February illustrated very well the poor state of industrial production and business activity in the country, so the world got sure that this year China will remain stressed and buy little. It seems like the truth.
The growth of oil stock in the USA
Another thing affecting oil prices is the growth of oil stock in the USA. Yet another one is the readiness of Saudi Arabia to sell oil to Asia at the price of 6 USD lower than to other regions, as well as offer Europe special conditions of oil supply. Saudi Arabia can afford it thanks to the low prime cost of the produced material, Russia is no rival here.
So, this is a new format of oil war, more cruel and painful than we saw earlier, provoked by the Near East.
Oil price forecast in 2020
There are not as many options for the scenario to follow as we would like to be. The most probable one is the stabilization of Brent at about 25-40 USD this year. However, this may happen only after the price per barrel will travel to 6-8 USD and back as the result of new stress. Another scenario presumes that Saudi Arabia will shake the sector, capture a part of the market and secure the prices at about 25-40 USD with high volatility. Perhaps the US will intervene at some point; Donald Trump says they are ready to act when it is needed. However, these are just words; it is obvious that the current pause is no final of the drama.
This forecast is based on fundamental analysis. However, for a holistic view of what is going on and what might happen, the technical picture of the trades is also necessary.
Brent tech analysis
H4 of Brent
On H4, Brent performed a declining wave to 25.05. At the moment, the market escaped the channel of this declining structure. Currently, the chart shows the possibility of a correction to the level of 45.50. Today, the market is breaking 28.65 out from below. We are expecting the first wave of growth to reach 35.15. After that, the prices may correct to 28.65, followed by growth to 41.50. The goal is local, this is important. Then the quotations may correct to 35.15 and grow to 45.50. The goal is first, Then, a correction to 35.15 may follow. The goal is second.
Technically, this scenario is confirmed by the MACD oscillator. Its signal line has escaped the histogram area and is trading confidently upwards to 0. Special attention should be paid to the divergence on the indicator. This divergence confirms the possibility of further growth of the price.
H1 of Brent
On H1, Brent performed the structure of the first link of the declining wave to the estimated goal of 25.05. The hourly channel of the last fifth structure of the declining wave was broken out at 26.05. After that, the market managed to demonstrate an impulse of growth to 27.40. Through a correction to 26.05, the market is trading in the structure of the second impulse of growth to 31.63. The goal is local. Then, we expect a link of correction to 28.65, followed by growth to 33.48. The goal is estimated and first.
Technically, the scenario is confirmed by the Stochastic oscillator. Its signal line bounced off 50 upwards and keeps growing steadily to 80. After that, we consider the probability of a decline to 50, during a correction on the price chart. Then further growth to 80 will follow.
As we may see, the situation on the oil market is very ambiguous. While technical signals give us the hope for the restoration of oil prices, the whole fundamental background, from demand to production, denies it. The only thing that we may be sure of now is the fact that the market will always allow us both enter and exit the position without serious losses.