Daily Outlook

Oil is searching for the bottom

The oil is still searching for its bottom. On Wednesday morning spot contracts declined by 18% to $19.5 at one point. From today, the CME exchange introduces options with a negative strike price on Crude futures, suggesting that the Monday situation can be repeated. Most worryingly, following the decline in the oil price, there is increased pressure on Asian and European markets, net consumers of this commodity.

Once again, markets switched to risk-off mood. Month ago, this move was due to fear of uncertainty. Now the markets are afraid of a wave of defaults, starting from Oil-related producers. The problems of oil miner may affect both the jobs and processing industries, as well as cause problems for banks and brokerage companies. That is why the decline in oil prices, which is generally good for the economy, is dragging down stocks and indices around the world and putting it back on the agenda for many politicians.

Americans have returned to the idea of buying oil into reserves, as did Australia. Some OPEC countries were discussing the situation the night before. Several Oil producers indicate their readiness to start cutting immediately, without waiting for the beginning of May.

The fact that politicians in many countries paid attention to the collapse of oil prices formed a kind of shaky support at round levels. Brent on the spot market is attracting buyers down to $20, June futures on WTI fell to $6.9 yesterday. However, on Wednesday morning, they are fighting for levels close to $10.

The oil looks extremely oversold and unreasonably low at these levels. It attracts trader speculators. However, we should keep in mind the example of the contract collapse to -$40, which we saw on Monday. Buying oil now is like catching knives falling from a skyscraper.

For short-term speculators may be wise to stay away until the first signs of a trend reversal. In 2018, 2016 and 2009, the multi-month upward reversals occurred after a sharp daily gain. The words of the officials gave this impulse to the melted demand. Then the market forces came into play in the form of short positions cut and long-term purchases. The oil now so low that even after missing the very beginning of the move, investors still will have plenty of potential.

The FxPro Analyst Team

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