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UK Oil - Steady Near Three Month Low Below $40 on Recovery Concerns



UK Oil – Steady Near Three Month Low Below 40 on Recovery Concerns
In the last week, UK Oil has settled in a narrow range right around $40 after having fallen sharply for the week prior, from a six month high above $46. It didn’t move with any strength in the four weeks or so, as UK Oil ever so slightly moved higher reaching that six month high, as it has been a period of very low volatility. It very slowly moved through the key level at $43 in July and has since ever so slightly crept higher. It was able to enjoy some strong support from the $43 level, however this has now been strongly broken through and may provide some resistance should UK Oil rally in the immediate future.

In early June UK Oil made two solid runs towards a then three month high and met stiff resistance at $43 on both occasions. Rather than breaking strongly through this level, it was very subtle. Throughout May, UK Oil slowly but surely moved higher to that three month high, before falling sharply, and then making repeated attempts to push passed the current resistance around $43.

Its recent surge higher is a vastly different picture to mid-April, as UK Oil sank to its lowest level in many years below $20, and currently UK Oil is close to closing the significant gap down in early March, by returning to above $45. In early May, UK Oil settled right around the key $30 level after rallying well off the multi-year lows below $16, and it also consolidated well several weeks ago around $35. After a significant gap down from $45 to $35 in early March, it initially received solid support from another key level of $25 which had supported it well for several weeks, which was so desperately needed, so it was telling when its largest fall was breaking through the $25 level mid-April.

Through most of March and April, UK Oil did well to consolidate above $25 after such significant falls in early March. During the first half of March, UK Oil fell from a previous key level at $58 down to the multi-year lows and consolidated well stopping the rot, before the break lower in the second half of April. Of note is that any of these levels are now likely to provide resistance if and when UK Oil rallies up from its lows, although with current price action considered, this would have to be some time off yet. The $58 level has played a significant role on several occasions therefore is likely to now offer some resistance should UK Oil attempt to rally further, although this is now some distance away.

In its monthly report published yesterday, the Organization of the Petroleum Exporting Countries (OPEC) cut its forecast for oil demand growth this year. “ … risks remain elevated and skewed to the downside, particularly in relation to the development of Covid-19 infection cases and potential vaccines,” the group said in the report. “Furthermore, the speed of recovery in economic activities and oil demand growth potential in Other Asian countries, including India, remain uncertain,” it added. Only two weeks ago, oil prices were being well supported from some positive economic data showing some signs of economic recovery post COVID-19 lockdowns. However there has always been some scepticism over how solid the economic recovery would be with global cases now passing 29 million cases, and approaching 1 million deaths. Investors now expect an ongoing global glut of oil, as demand weakens further with rising COVID-19 cases in some countries, especially India. This has been backed up by the booking of tankers to store crude oil and diesel, during a stalled economic recovery as the COVID-19 pandemic continues. U.S. stock indexes headed lower for a second straight week decline as recent economic indicators suggested a long and difficult recovery from the pandemic.

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The information provided herein is for general informational and educational purposes only. It is not intended and should not be construed to constitute advice. If such information is acted upon by you then this should be solely at your discretion and Valutrades will not be held accountable in any way.

This post was written by Graeme Watkins

CEO Valutrades Limited, Graeme Watkins is an FX and CFD market veteran with more than 10 years experience. Key roles include management, senior systems and controls, sales, project management and operations. Graeme has help significant roles for both brokerages and technology platforms.