Should we take a position on oil?

  •   18/03/2020 - 14h31
  •   HARMANT Adeline

If you've been waiting for the right time to buy oil, now may be the right time, as the price of black gold hit a new low this morning. Let's find out together if it's really worth entering the market now.

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Should we take a position on oil?
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A good entry point for oil investors?

This morning, the price of a barrel of oil stood at $29.50, a drop of 55% since the beginning of the year. This fall was caused by the coronavirus and its impact on world demand but, at the beginning of March, it was Saudi Arabia which set fire to the powder keg by increasing its production to meet Russia's refusal to comply with a joint reduction. This announcement alone led to a 35% drop in the barrel. From now on, the barrel of Brent touches levels which had not been reached since the end of the year 2015.

However, experts agree that the current oil price has already incorporated the bad news and has therefore anticipated the drop in demand that will be due to the drop in air and ground transportation as well as the decline in overall demand from the global industry and the increase in production.

It would appear that it is the US production companies that are suffering most from these circumstances. Saudi Arabia, with an economy that is particularly dependent on the oil market, could also face very difficult times. It should be remembered that the Saudis had already tried the same strategy in 2014 with only one resounding failure two years later.

Although the U.S. government is buying oil to fill strategic reserves, this will not really impact this market in the short term. It will therefore be necessary to wait for more reassuring news before the price per barrel starts to rise again. In fact, as governments implement accommodating fiscal policies, the risk of recession is receding more and more and we could see a rebound in the markets.

 

Technical indicators to be taken into account :

If fundamental analysis tells us that there is a strong probability of a return to higher oil prices, what does the technical analysis say?

On the graphs, we first notice that the price of black gold is approaching several interesting policy thresholds. In particular, it is advisable to carefully monitor the $26 threshold, which corresponds to the historical low of 2016, and then the $19-20 threshold that was reached in 2002, 18 years ago.

Prices still appear to be on the decline for the time being, but a positive reaction can be expected in the longer term and between $20 and $26. This recovery should allow buyers to regain some hope. It is therefore interesting to get ready to take a buying position.