Oil Barrels

Crude Struggling to Stay Above $50 as China Demand Slips

Crude oil has posted slight gains on Tuesday, erasing the losses seen on Monday. Currently, U.S. crude oil is trading at $50.35, up $0.67 or 1.36% on the day. Brent crude oil is trading at $54.24, up $0.89 or 1.63%.

Crude Hovering at $50 Level

U.S. crude remains under pressure this week. On Monday, crude closed below the key 50.00, for the first time in over a year. Investors remain concerned about China, as demand is down in the world’s second-largest consumer of oil. This is a direct result of the coronavirus, which has caused havoc in the economy. Officials have shut down most of the factories in the country and also restricted the movement of up to 400 million Chinese. China’s oil refineries have cut back and that has meant reduced demand for crude, with some analysts predicting that Chinese demand for crude has fallen by 20%.

Meanwhile, OPEC is nervously watching developments and Saudi Arabia is leading an initiative to cut production by 600,000 barrels a day. Saudi Arabia will be able to tow the Gulf states on board but it is unclear if Russia, a major oil producer, will go along with the proposal. Russia’s energy minister, Alexander Novak has said that he is studying the OPEC proposal, but is yet to give a response. If Russia does give its approval, this could give crude prices a badly-needed lift.

Technical Analysis

The key $50 level is under strong pressure in support. Below, we find support at 49.00, which has held since January 2019. On the upside, we find resistance at 51.00. This is followed by resistance at 52.00.