By Giles Coghlan, Chief Currency Analyst at HYCM
Support for the US Oil market from low prices
The reason OPEC negotiations fell apart two weeks ago was because of the coronavirus. It was the fall in demand from the coronavirus that led to OPEC needing to cut production by 1.5 million bpd. US oil is currently at 30.42 and Saudi Arabia must be hoping that these discount prices will cause countries to step in and top up their own oil reserves.
The US topped up its strategic reserves on Friday temporarily boosting oil, but oil was soon sold off as soon as the market refocused on all the weekend headlines as COVID-19 spreads unabated. Central banks have tried cutting interest rates, Gov't's have tried fiscal stimulus, but this is a medical problem which needs a medical solution. The falling demand will keep oil pressured on any retracements.
So, a couple of things to watch for oil. Firstly, if China decide to stock up their reserves then expect a similar spike in oil as when the US topped up their reserves. If you have a news squawk then keep it on. Secondly, expect any spike to be sold into as the main issue remains - demand falling as the entire globe stops moving fluidly on these coronavirus fears.
There is still the potential of some oil bargains and pending orders down at $11.50 now.
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