On April 12, Opec, Russia and other oil producing nations had agreed to cut output by a record amount, representing around 10 per cent of global supply.
Oil prices plummeted 29 per cent by Monday afternoon with WTI crude falling below $13, the lowest level over the past two decades, as traders grew concerned that storage facilities are reaching their limits.
Analysts predict that the oil price could fall to $10 a barrel if the production fails to address the supply glut. On April 12, Opec, Russia and other oil producing nations had agreed to cut output by a record amount, representing around 10 per cent of global supply, to support oil prices amid the coronavirus pandemic. The group agreed to reduce output by 9.7 million barrels per day for May-June after a compromise with Mexico.
On Monday, WTI fell 29 per cent or $5.3 a barrel to $12.97 a barrel, its lowest price in over two decades, while Brent was down over two per cent to $27.48.
“Oil has dropped to a 21-year low. Basically, bears are out for blood… The steep fall in the price is because of the lack of sufficient demand and lack of storage place given the fact that the production cut has failed to address the supply glut. There is a strong possibility that WTI crude prices can drop to $10. Yes, I mean $10!,” said Naeem Aslam, chief market analyst at London-based AVA Trade.
In terms of technical price levels, Aslam said if the price falls to $13 to $16 range, which it already has, the upside range could be $20 to $23. And if the price falls to $10 to $13, a likely scenario, the immediate ceiling level could be $15 to $18 on short-term period of four to seven months.
“The bottom line is that there is no doubt that oil prices are way oversold at the current level, but given the circumstances, it is likely that the price may continue to fall further because the rig count hasn’t touched its bottom yet. But for an investor who holds a long term perspective, a time frame of 12 months to 24 months, the current plunge in oil price represents an opportunity,” said Aslam.
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