Crude Oil

Oil Loses Ground As Traders Take Profits Under The $40 Level

Oil Video 30.06.20.

Oil Still Lacks Catalysts To Settle Above The $40 Level

Oil is under some pressure today. While there are no material catalysts for this weakness, it looks like oil does not have enough catalysts to get above the key $40 level so some traders are taking their profits.

Also, traders are waiting for Wednesday which will be full of catalysts. First, traders will digest a number of U.S. economic reports. Second, the market will take a look at the new data regarding U.S. inventories and domestic oil production.

Without this important data, traders are reluctant to become too bullish on oil since negative news could lead to a sell-off.

I’d note that the current trend in the oil market is certainly bullish since oil has managed to ignore all the recent bad news on the coronavirus front as well as the recent increase in U.S. domestic oil production.

However, the $40 level is a very serious resistance level for oil so the market will likely need more catalysts to continue the upside move.

Royal Dutch Shell Is Set To Write Down Up To $22 Billion Of Assets

It is always interesting to see what oil majors think about longer-term oil price trends. Due to the impact of the coronavirus pandemic, Shell decided to change its commodity price outlook which will lead to post-tax impairment charges of $15 billion – $22 billion.

Shell believes that Brent oil price will average $35 per barrel in 2020, $40 in 2021, $50 in 2022 and $60 in 2023. The long-term price assumption is $60 per barrel.

This outlook is based on rather conservative expectations for the recovery of oil demand. Currently, the front-month Brent contract is trading above $40 so Shell’s forecast calls for additional softness in Brent.

Facing an unprecedented shock, oil companies will likely be very conservative with their forecasts so oil traders may have a more optimistic view on future oil prices.

However, the forecasts of majors should not be discounted since they have access to the best data in the industry and generally know what they are talking about. Shell’s forecast implies a gradual recovery of the oil market which looks realistic. It’s important to note that Shell’s forecast includes average prices, and oil will likely remain very volatile in the upcoming months and years.

For a look at all of today’s economic events, check out our economic calendar.