Market News & Analysis

Top Story

WTI’s Perfect Bearish Storm Approaching Key Support Near 25.00

Even in a lifetime oil bear’s wildest dreams, it would be impossible to conceive of a more perfect storm for oil prices falling precipitously:

  • Crude faces arguably its largest demand shock in history from the coordinated pandemic-induced shutdown of commerce across the globe…
  • …While Saudi Arabia and Russia drastically ramp up supply in an effort to drive other producers out of business…
  • …and the US dollar, in which oil contracts are denominated, surges to test multi-year highs…
  • …and risk appetite evaporates due to the aforementioned spread of COVID-19

Put in that light, some analysts could argue that its amazing that oil is down “only” 53% so far this year.

Of course, like any commodity market, there are fundamental factors on both the supply and demand side that will bring the oil market back into balance over time. As prices fall below the cost of production in many area, higher-cost drillers will be forced to shut down operations, eventually decreasing the supply. Even Saudi Arabia and Russia cannot afford to sell at a loss indefinitely.

At the same time, the lower price of oil will increase marginal consumption, through consumers taking an extra car trip (once coronavirus fears blow over) or businesses utilizing more petroleum derivatives to produce their products. The US government, recognizing the potential value the drop in prices creates, has promised to refill the Strategic Petroleum Reserve (SPR). While analysts have noted that the SPR can only hold about another 80M barrels, or new buying of about 225k bpd for the next year, this mirrors the decision that other countries and investors are considering.

Of course, all these trends will play out over a longer time period. In the near term, the technical outlook for oil remains bleak. Focusing on WTI, prices remain in a clear downtrend for the moment, with the next major level of support sitting down in the 24.50-26.00 range; this represents the confluence of the lows from Q1 2016 and all the way back in Q4 2012/Q1 2013:

Source: TradingView, GAIN Capital

For short-term traders, the most prudent course of action may be to remain short on oil until this support level is hit or price recovers back above its 21-day EMA (currently around 40.00 but falling fast). If price shows signs of turning higher from this support zone (perhaps through a reversal candlestick pattern and a bullish divergence in an oscillator like RSI), traders could consider closing short trades or entertaining counter-trend long positions.

Of course, if price breaks through this potential floor, a continuation lower could be in the cards, with the potential for oil to fall toward $20.00 even, as incredible as that is to consider based on where we were at the start of the year!  


This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

GAIN Capital Singapore Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the GAIN Capital group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), GAIN Capital Singapore Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact GAIN Capital Singapore Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither GAIN Capital Singapore Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

GAIN Capital Singapore Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit for the complete Risk Disclosure Statement.

Important Notice:

Cryptocurrencies are not legal tender currency and trading of derivatives on Cryptocurrencies are currently not covered under any regulatory regime in Singapore. Consequently, investors should be aware they do not have protection under the Securities and Futures Act (Cap. 289). Please ensure that you are fully aware of the risks.