Home Commodities United States Oil (USO) hits 18-year low as lockdowns diminish demand

United States Oil (USO) hits 18-year low as lockdowns diminish demand

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United States Oil (USO) hits 18-year low as lockdowns diminish demand

Crude oil fell sharply on Monday, with U.S. crude briefly dropping below $20 and Brent hitting its lowest level in 18 years, on heightened fears that the global coronavirus shutdown could last months and demand for fuel could evaporate further.

Brent crude, the international benchmark for oil prices, was down $1.93, or %7.7, at $23.00 by 0820 GMT, after earlier dropping to $22.76, the lowest since November 2002.

U.S. West Texas Intermediate (WTI) crude fell $1.14, or %5.3, to $20.37.

The price of oil is now so low that it is becoming unprofitable to many oil firms to remain active, analysts said, and higher cost producers will have no choice but to shut production, especially since storage capacities are almost full.

“Global oil demand is evaporating on the back of COVID-19-related travel restrictions and social distancing measures,” said UBS oil analyst Giovanni Staunovo.

“In the near term, oil prices may need to trade lower into the cash cost curve to trigger production shut-ins to start to prevent tank tops to be reached,” he added.

Besides demand destruction caused by the coronavirus pandemic, the oil markets have also been slammed by the Saudi Arabia-Russia price war that is flooding markets with extra supply.

An official from Saudi Arabia’s energy ministry said on Friday the kingdom was not in talks with Russia to balance oil markets despite rising pressure from Washington to stop the rout that has cut prices by more than 60% this year.

With world demand now forecast to plunge 15 million or 20 million barrels per day, a 20% drop from last year, analysts say massive production cuts will be needed beyond just the Organization of the Petroleum Exporting Countries.

“OPEC, Saudi Arabia and Russia could mend their differences, but there’s not that much OPEC could do …. The demand shock from COVID-19 is just too big,” said Lachlan Shaw, National Australia Bank’s head of commodities research.

The contango spread between May and November Brent crude futures reached its widest ever at $13.45 a barrel, while the six-month spread for U.S. crude broadened to minus $12.85 a barrel, the widest discount since February 2009.

Prompt prices are lower than those in future months in a contango market, encouraging traders to store oil for future sales.

Asian shares also slipped on Monday despite the all-out efforts of the central banks to bolster the markets with rate cuts and asset-buying campaigns. [MKTS/GLOB]

China’s central bank unexpectedly cut the rate on reverse repurchase agreements by 20 basis points on Monday, the largest in nearly five years, as authorities ramped up steps to relieve pressure on an economy ravaged by the coronavirus pandemic.

Technical Indicators

Overall, the bias in prices is: Downwards.

Note: this chart shows extraordinary price action to the downside.

By the way, prices are vulnerable to a correction towards 8.40.

The projected upper bound is: 5.66.

The projected lower bound is: 2.98.

The projected closing price is: 4.32.

Candlesticks

A black body occurred (because prices closed lower than they opened).
During the past 10 bars, there have been 3 white candles and 7 black candles for a net of 4 black candles. During the past 50 bars, there have been 20 white candles and 29 black candles for a net of 9 black candles.

A falling window occurred (where the bottom of the previous shadow is above the top of the current shadow). This usually implies a continuation of a bearish trend. There have been 13 falling windows in the last 50 candles–this makes the current falling window even more bearish.

A hammer occurred (a hammer has a long lower shadow and closes near the high). Hammers must appear after a significant decline or when prices are oversold (which appears to be the case with UNTD ST OIL FUND) to be valid. When this occurs, it usually indicates the formation of a support level and is thus considered a bullish pattern.

A hanging man occurred (a hanging man has a very long lower shadow and a small real body). This pattern can be bullish or bearish, depending on the trend. If it occurs during an uptrend it is called a hanging man line and signifies a reversal top. If it occurs during a downtrend (which appears to be the case with UNTD ST OIL FUND) it is called a bullish hammer.

A long lower shadow occurred. This is typically a bullish signal (particularly when it occurs near a low price level, at a support level, or when the security is oversold).

A spinning top occurred (a spinning top is a candle with a small real body). Spinning tops identify a session in which there is little price action (as defined by the difference between the open and the close). During a rally or near new highs, a spinning top can be a sign that prices are losing momentum and the bulls may be in trouble.

Momentum Indicators

Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.

Stochastic Oscillator

One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 35.4610. This is not an overbought or oversold reading. The last signal was a buy 6 period(s) ago.

Relative Strength Index (RSI)

The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 24.26. This is where it usually bottoms. The RSI usually forms tops and bottoms before the underlying security. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a buy 19 period(s) ago.

Commodity Channel Index (CCI)

The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is -92. This is not a topping or bottoming area. The last signal was a buy 3 period(s) ago.

MACD

The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a sell 21 period(s) ago.

Rex Takasugi – TD Profile

UNTD ST OIL FUND closed down -0.360 at 4.470. Volume was 98% below average (consolidating) and Bollinger Bands were 214% wider than normal.

Open     High      Low     Close     Volume___
4.515 4.530 4.330 4.470 712,171
Technical Outlook 
Short Term: Neutral
Intermediate Term: Bearish
Long Term: Bearish
Moving Averages: 10-period     50-period     200-period
Close: 5.10 9.24 11.20
Volatility: 164 122 72
Volume: 99,461,552 51,772,772 32,098,336

Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.

Summary

UNTD ST OIL FUND gapped down today (bearish) on light volume. Possibility of a Common Gap which usually coincides with a lack of interest in the security. Common Gaps are fairly irrelevent for forecasting purposes. Four types of price gaps exist – Common, Breakaway, Runaway, and Exhaustion. Gaps acts as support/resistance.
UNTD ST OIL FUND is currently 60.1% below its 200-period moving average and is in an downward trend. Volatility is high as compared to the average volatility over the last 10 periods. Our volume indicators reflect moderate flows of volume out of USO (mildly bearish). Our trend forecasting oscillators are currently bearish on USO and have had this outlook for the last 51 periods. Our momentum oscillator is currently indicating that USO is currently in an oversold condition. The security price has set a new 14-period low while our momentum oscillator has not. This is a bullish divergence.

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