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Oil is on a decline

Monday trading session for oil started in the red zone due to growing concern that a record increase in the number of COVID-19 cases around the world could slow the recovery in demand for fuel.

 

The largest number of cases per day was recorded in Brazil and the United States. There are new outbreaks of disease in Beijing, Australia's largest state - Victoria, and other regions of the world. Apparently, in the near future, this news will limit the rise in oil prices.

 

It is also important to remember about the expiration of the WTI futures contract this week. Probably, due to the general uncertainty and increased risks, many investors will fix long positions on this instrument.

 

According to a report released on Friday by Baker Hughes, the number of active drilling rigs in the US continues to decline to a record low, despite rising oil prices in recent weeks. The volume of supply on the market remains high. Storage reserves are limited. Therefore, manufacturers continue to reduce production volumes.

 

Regarding the chart, we note another unsuccessful attempt of a breakdown at the level of 40.00. False breakdown is a reversal signal, therefore, we can expect a retreat at least to the area of 38.50.

 

  • Resistance levels: 40.00, 41.00, 42.00.

 

  • Support levels: 38.50, 36.80, 34.50.

 

The main scenario - a decline towards the level of 38.50

 

An alternative scenario - a consolidation above  the level of 40.00 and growth towards 41.00.

 

The current fundamental outlook is moderately negative. We consider shorts near the level of 40.00.

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