Oil Markets Continue to Fall on Fears of Lack of Demand

Kate Leaman
Kate Leaman

27 January 2020

3 min read

Oil trading

  • Virus story the latest excuse for lack of demand
  • Technical analysis shows the market was falling before
  • The range is still intact

Crude oil markets have been negative for a whole host of reasons lately. The latest headline pins the lack of demand on the coronavirus in China, and the fact that it could drive down demand for petroleum.

The theory goes that economic movement will slow down. If that’s the case, less travel means less demand for goods and services, as people will be quarantined.

the coronavirus story is simply the latest headline that’s causing issues with the price of crude oil

The Chinese have already quarantined millions of people from moving around the country, and it is becoming more likely that the situation will only get worse. That being said, the coronavirus story is simply the latest headline that’s causing issues with the price of crude oil through lack of demand.

In any case, crude oil demand and prices have been falling before this latest coronavirus story, as the chart demonstrates.

Technical analysis

WTI oil chart

The technical analysis for crude oil is very poor. The markets have sold crude drastically for the last couple of weeks, from a high of $65 down to the $54 level early during the session on Monday.

A significant amount of support has been broken, and the large, round, psychologically significant figure of $55 will be an area that’s worth paying attention to as we have sliced through there.

Furthermore, if the market breaks down below the $54 level, it’s very likely that it could reach down towards the $51 level an area that has seen a lot of buying pressure in the past.

It should also be noted that the candlesticks have been very impulsive to the downside, and now it seems it’s only a matter of time before that bottom gets tested. The market has already bounced from there several times, keeping the WTI crude oil price in a range from roughly $50 on the bottom to the $65 level on the top.

As things stand right now, the market will very probably see a reaction underneath. If crude oil was to break down below the $50 level, the floor would fall out and the market could then pick up another leg of momentum.

Further price drop expected

In the short term, this market should continue to go lower. However, the so-called “easy money” has already been made. If the market rallies from here, it’s expected that there will be a significant amount of resistance near the $55 level, but even more at the $56 level.

At signs of exhaustion, the short sellers will come back into the marketplace to take advantage of the absolute collapse in price.

Ultimately, the rallies will more than likely be relief rallies rather than anything else. The lack of demand stretches beyond a simple virus story. Plus, the fact that the Americans are pumping out more oil than ever makes the global demand picture look very bleak to begin with.

Kate Leaman
Written By
Kate Leaman

With over 10 years experience as a trade news writer, Kate is our FX and commodities expert. Kate is also a talented voice over artist and BBC TV presenter, mother of two and yoga fan. Read Kate's bio

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