Oil prices slump amid lowest demand in 25 years despite OPEC+ supply cuts

Oil prices dipped on Wednesday as demand for the commodity hit a 25 year low, with OPEC+ supply cuts doing little to stabilise the market.

Brent crude fell below the $30 a barrel benchmark on Wednesday, trading 3% lower at $28.47 a barrel as of 14:05 (GMT), while the US West Texas Intermediate (WTI) has dipped below $20 to $19.72 a barrel, representing a 2% decline.

Oil outlook: technical analysis

US crude (WTI) has tumbled today, as price finally broke from its consolidation pattern that dominated trade over the past week,’ according to Josh Mahony, senior market analyst at IG.

‘OPEC+ efforts to calm markets provided some upside in the first few days of April, yet the fact that those gains were restricted to the period prior to the agreement says a lot about sentiment surrounding crude right now,’ Mahony said.

‘From this wider perspective, we can see that this drop below $26.63 could herald another break back below the $20.52 to continue the downtrend that has been playing out over the course of 2020 thus far,’ he added.

Nevertheless, from a more cautious perspective, there is a chance that we are in a retracement mode, as the market attempts to bottom-out.

Even if that is the case, we are looking at further short-term downside given the fact that we are yet to hit either the 61.8% or 76.4% Fibonacci support levels ($24.74 and $23.13).

In any case, the breakdown back below the 80 level on the stochastic does appear to highlight a bearish swing in momentum that looks likely to provide further downside.

From an intraday perspective, the hourly chart shows this recent breakdown, with price forming lower highs and lower lows.

This current period of consolidation is likely to ultimately resolve with another move lower, with a break below the $25.30 support level bringing about a new sell signal. Until then, there is a chance of a deeper upward retracement.

Even if that does come to pass, such gains would be perceived to represent a bearish retracement rather than a bullish buy signal.

IEA tells oil market to brace for lowest demand in 25 years

The International Energy Agency warned the oil market on Wednesday to brace itself for the lowest level of demand the sector has seen in 25 years as a result of the global coronavirus lockdown.

The energy regulator said that oil demand in April will likely hit its lowest level, falling to 29 million barrels of oil per day (bopd) below last year’s average.

‘Even assuming that travel restrictions are eased in the second half of the year, we expect that global oil demand in 2020 will fall by 9.3m barrels a day versus 2019, erasing almost a decade of growth,’ the IEA said.

The IEA also made it clear that OPEC+ supply cuts will do little to offset the impact the Covid-19 pandemic is having on global demand and declining oil prices.

Echoing similarly negative sentiments, the International Monetary Fund said that the economic impact of the coronavirus crisis will likely bring about the deepest recession since the Great Depression.

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