It was smart to be a contrarian with oil.
Days ago, oil investors panicked, as coronavirus cases skyrocketed.
“Coronavirus represents a real threat to oil demand,” Patrick DeHaan, the head of petroleum analysis at GasBuddy, told ABC News. “We are already looking at a real downturn in demand. You’re looking at thousands of flights being cancelled in China,” he added. “Some of it is certainly rooted in speculation and worry over the continued spread.”
However, we reported that a good chunk of coronavirus news had been priced in. Goldman Sachs even noted, there was “only modest further downside potential,” as quoted by Oil Price.
At the time, oil traded at just $50.75 after plunging from $65 a barrel.
Why Oil Bulls are Starting to Come out of Hiding
Nowadays, oil is back up to $51.60 and rising, as investors eye deeper production cuts from OPEC. “The market is keeping a close watch on the possible move by Russia and its oil companies to get on-board with the proposal to deepen the OPEC+ production cuts,” Again Capital’s John Kilduff told CNBC. “The companies seem to be willing to extend the time frame of the deal, but not deepen. Any cooperation is a positive, however.”
Oil prices are also rising on news that the number of coronavirus cases are starting to fall.
FundStrat’s Tom Lee said that oil prices were being “boosted as worries ease over coronavirus disease’s hit to crude demand,” while Again Capital’s John Kilduff said, “the ebbing fears over the coronavirus outbreak are another positive” for oil.
While the number of coronavirus deaths unfortunately passed 1,000, the number of new confirmed cases has begun to flatten out, and fall. Better, according to China, the epidemic could be over by April 2020, as noted by Reuters.
Technically, oil is just beginning to pivot higher from oversold conditions at its lower Bollinger Band (2,20), with oversold extensions on RSI, MACD, and Williams’ %R. If we see further good news from China and OPEC, we could potentially see a bearish gap refill around $63.
