5-minute update on the oil price

5-minute update on the oil price

The oil price has fallen sharply today. Below we list some key points that could determine where the oil price goes next.

• Both Brent and WTI are now below $70 per barrel. Brent crude is at its lowest level since September.
• The decline in the oil price has been rapid and brutal. From a technical perspective, Brent crude oil is now below the 50,100 and 200 days smas.
• This suggests that there is nothing to ‘catch’ the oil price as it slides lower, but it is also a sign that the oil price could be approaching oversold levels, from a technical perspective.
• The factors weighing on the oil price include US economic weakness, supply concerns with Opec’s supply boost coming next month, and an end to the war in Ukraine that could also see Russian oil come back on the global market.
• Supply is abundant at the same time as demand might waver. The latest Atlanta Fed GDPNow survey is predicting a 1.5% contraction in the US economy this quarter.
• Interestingly, the oil price decline has accelerated on Wednesday, even though China boosted its GDP forecast to 5% for 2025, and China has said that it would accelerate its annual stockpiling of strategic fuels and other commodities.
• China is the world’s largest consumer of raw materials, so this is a bullish development for the oil price and commodities in general.
• Added to this, the US ISM survey was stronger than expected for Feb, and President Trump is expected to water down his tariffs to Canada and Mexico later on Wednesday.
• However, the oil market is ignoring these good news stories.
• If the oil price stays below $70 for long, this is bad news for oil producers like BP, Shell etc, as it could weigh heavily on their profitability and their ability to offer shareholder returns like dividends and buybacks.
• BP is mostly flat today, after falling sharply in the past month.
• It appears that the market has had a sharp reaction to the Opec + supply shift. The oil price is weaker than energy stocks, which is also a sign that the oil price is oversold on Wednesday.
• We think that the oil market is over-correcting as a result of this supply shift, and the oil price is oversold on a short-term basis. However, we may need to see a better-than-expected NFP report on Friday to ease downward pressure on oil and to get Brent crude back above $70, although the outlook above this level is less clear.