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Oil, Coronavirus, China & OPEC+


Peter Kimani

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Well, it's a bit early to predict whether last week's rally in oil prices will be replicated this week, let alone for the newt few weeks. The main challenge with forecasting future crude oil demand at the moment is because nobody knows when the coronavirus outbreak will be contained. Last week's rally was driven by investor hopes that coronavirus infections had peaked, but this is clearly not true as new cases are still being reported.

Regardless, the technical picture for oil prices looks very promising as the commodity seems to have found strong support at the $49.40 level, which is where the rally started. I do not believe that we will see a major rally in oil prices any time soon given the prevailing market conditions. Long-term investors may accumulate speculative long positions at current prices, while shorter-term traders may be best served playing both sides of the market in case price trades sideways.

However, oil prices may spike higher if OPEC+ announce major cuts in oil production, which could happen any time now if the coronavirus epidemic keeps spreading. Remember that both oil producers and marketers suffer when oil prices are depressed, but a long-term rally can only occur if the coronavirus outbreak slows down and is contained.

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