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Crude oil prices are once again witnessing some pressure over the virus fears, with Brent crude oil futures plunging over 6 per cent from USD 52.48 (intraday high on 18 December 2020) to USD 49.20 a barrel yesterday.
Image Source: © Kalkine Group 2020
The decline in prices was sparked by the spread of a new strain of COVID-19 virus across the United Kingdom. The fear of the new strain has now prompted many neighbouring countries to suspend in and out travel from Britain.
Apart from that, several additional travel restrictions across the U.K. is also denting the demand outlook for oil.
Since some time, the demand and supply had begun to balance out. Even many industry experts such as the United States Energy Information Administration (EIA) estimated the average price for crude to increase over the coming quarters despite building global oil inventory over recovery in demand. The new strain of COVID-19 virus might derail the energy industry once again.
To Know More, Do Read: Crude at Crossroads After Surpassing USD 50 Hurdle
In an announcement to the public, the U.K. president Boris Johnson mentioned that the new strain of the virus seems to be more contagious than the prior known strains, leading to ~ 70 per cent faster infections. The spread of this new strain has created a new travel restriction scenario across Europe with many other countries such as India banning travel to and fro from the Kingdom.
Such travel restrictions have sparked new fears among oil investors, which is now getting reflected in oil prices.
Crude oil on Charts
Brent Crude Oil Futures Daily Chart (Source: Refinitiv Eikon Thomson Reuters)
On following the daily chart, it could be seen that over the past many days, crude oil has been trading in an accelerated uptrend. However, the slope of the trend has gradually reduced, leading to the breakdown of several short-term support lines – a cumulative support zone, which should now act as a resistance zone for the price.
Despite a large fall yesterday, the short- and medium-term trend for the oil market still bullish in nature as the prices are trading above the 50- and 200-day exponential moving averages.
During the day’s session on 18 December 2020, Brent oil prices gave a volatility breakout with prices crossing the +2 Standard Deviation of the 20-day simple Bollinger Band®. However, the breakout could not sustain, and now, oil prices are reverting to the mean of the band.
The primary support for Brent prices is at USD 47.20, as historically the price has tested and consolidated around that level briefly.
Another major support for the price is at the -2 Standard Deviation, which is now overlapping with the 50-day exponential moving average; and thus, could be decisive in nature with confirmatory value. A break and price action below the same could attract bearish sentiments ahead.
The directional indexes are now reacting to the sharp day’s decline with plus DI starting to slope downwards while minus DI starting to slope upwards. However, there has been no negative crossover between them. Also, the slope for ADX is taking a U-turn over the changing direction in prices.
