WTI is giving up earlier gains as investors weigh up the collapse in business activity across Europe and UK, as coronavirus pummels the economy with unprecedented force.
Oil prices are being underpinned by a focus on the Federal Reserve unleashing its full firepower to backstop the coronavirus hit to the economy, which has weakened the dollar.
Additionally, optimism is rising that the US will soon agree to $2 trillion coronavirus aid package to cushion the economic impact of coronavirus outbreak. This would bring a two-fold benefit. Firstly, it would increase the cash supply, weighing on the value of the dollar. A weaker dollar boosts dollar denominated oil prices, by making it cheaper for buyers with other currencies. Secondly it would support oil demand by propping up the economy. Whilst Congress are still haggling over the deal, it is expected to be reached sooner rather than later.
Overall demand remains low
Oil is struggling to maintain session highs as overall oil demand remains low amid ongoing travel restrictions and as commercial activities grind to a halt.
Whilst there are signs that the number of deaths have peaked in Italy, numbers in the US, the world’s second largest consumer of oil are still a few weeks behind. The World Health Organisation has warned that the US, the world's largest economy, may become the global epicentre of the coronavirus outbreak. US PMI data is due this afternoon. If European data is anything to go by, then the hit on the service sector could be eye watering. And it could get a lot worse over the coming months as more and more US cities move into lock down mode.
Whilst the picture in China, the world’s largest consumer of oil was improving with no new cases, this record has been marred recently as those returning from overseas have brought the virus back with them.
Levels to watch
Oil has jumped 4.5% in early trade but is giving back those gains. WTI is currently up 2.5% at 24.00 testing support of 50 and 100 sma.
A break through $24.00 could open the door to $21.70 (yesterday’s low) prior to $20.06 (low 18th March).
Resistance can be seen at $25.12 (today’s high) prior to $26 (high 20th March) and $27.30 (200 sma).
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