14.07.202014:07 Forex Analysis & Reviews: Oil continues to sag with rapid decline in raw materials price

The price of crude oil continues to decline on Tuesday. The unyielding COVID-19 situation remains the leading factor for the recession. This provoked immediate reimposition of restrictive quarantine measures on the territory of individual states.

The number of newly detected cases of COVID-19 infection in the world is growing rapidly, and these statistics can no longer be ignored by market participants, causing them extreme concern about the further development of events.

In the US, authorities in the state of California decided new quarantine measures for business, since the number of cases has grown significantly and there is an urgent need to restrain this process in the future. In Los Angeles and San Diego, it is prescribed to cancel all children's activities, it is planned to introduce home quarantine before the end of August. In addition, an order was released issuing, again, force closures of bars, restaurants, cinemas, museums, parks, and other public places of recreation. And by the end of the month, hairdressers, gyms, churches, and so on should temporarily suspend their activities as well. So far, such measures are only applicable to areas with a record-breaking number of cases.

However, no one can guarantee that the restrictions will not soon apply to the rest of the states. Investors began to take the news on coronavirus infection more seriously, which immediately affected the price of crude oil. So far, quarantine imposed in some US states is still moderate, but even it can seriously undermine the economy and affect the level of demand for crude oil and fuel. At least most analysts believe that the second summer month will be rather difficult for the oil market, and most of the problems are related to the uncertainty surrounding the coronavirus pandemic.

Meanwhile, investors' attention are presently divided into the coronavirus situation and the meeting tomorrow of the ministers of the OPEC monitoring committee. The main issue that will be raised at the said meeting is the transition to the next stage of the contract to reduce oil production. Since August, the extraction of raw materials, according to the agreement between the countries, should grow slightly and be at the level of 7.7 million barrels per day. This fact is already starting to put pressure on market participants, who are moving to more restrained work.

On top of that, there are a number of states that are likely to oppose easing in production and will stand on the idea of leaving everything at the same level until a more stable market position is achieved. The reasons for this position are also sufficient: a sharp lifting of restrictions may return to the raw materials market the excess supply that states tried to leave when they accepted the current conditions. This, in turn, can lead to a rapid collapse in the price of black gold, which will also be supported by the spread of COVID-19.

Nevertheless, there is practically no assurance that everything will remain the same. The ministers are determined to begin to reduce restrictions since so far the prices on the oil market are at a rather high level. A new period begins for market participants, in which the bearish trend may take the main place, which means that the negative correction will continue. The short position can be considered as the most promising in the present movement.

This is confirmed by statistics from the International Energy Agency: in the first month of summer, the demand for oil raw materials went down by 2.4 million barrels per day, which forced it to switch to the lowest level of 86.9 million barrels per day over the past nine years.

The price of futures contracts for Brent crude oil for delivery in September at a trading floor in London fell by 1.78% or $0.76. Its level so far has stopped at the level of $41.96 per barrel, closely approaching the strategically important mark of $40 per barrel. According to the results of yesterday's session, the brand also found itself in the red by 1.2% or $ 0.52, which stopped its movement in the region of $ 42.72 per barrel.

The price of futures contracts for WTI light crude oil with delivery in August on an electronic trading platform in New York also rapidly crept down. By morning, it decreased by 2.09% or $0.84, which sent it to the mark of $39.26 per barrel. Yesterday's trading ended with a decline of 1.1% or $0.45 and ended within $40.1 per barrel.