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Crude oil

Oil on your Watch List

July 6, 2020

WTI and Brent have been hovering in the $40 and $43 per barrel respectively, unable to break past the GFC oil price lows. Oil is not the only commodity suffering, with much of the energy sector struggling at the moment. Less demand is certainly hurting the industry globally, and each time a travel destination restricts further movements due to the pandemic, commodity investors and particularly oil traders feel less certain.

This month we will be watching markets across the board closely, earnings season is upon us once again and considering the last round of non-advice it will be interesting to watch. Regardless of earnings season it is also an important month for oil, as the world starts to consider the prospect of a longer recovery than first anticipated. It brings worries for many within the industry not just investors that a potential erosion of demand could very well reoccur.

The most at risk in my view is West Texas Intermediate Futures, and related derivatives. With the US resurgence of coronavirus setting new daily infection records, the worsening of this pandemic is rippling into the energy sector. For now, the quick rebound experienced in March through till May, could very well be over, the US situation while terrible isn’t the only factor to consider though.

This month we will be hearing more from OPEC and the ‘OPEC+ nations’, July was to be the month for oil production numbers to climb again. It is within my view that this is an unlikely outcome and that cuts will likely be extended, traders interested in oil should definitely keep an eye on the Energy Information Administration in the US for the weekly numbers of oil production affecting WTI. And of course, one firmly planted on OPEC, it also would not hurt to watch the international oil monthly report either.

UKBRENT overlayed on USWTI

For a technical reference, the chart above shows the reference point of the GFC lows of oil prices in both derivatives in the Blue Box, both current prices are seeing some resistance at this level.

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