Short Oil - 22% Potential Downside- 12 Feb 2020

Brent crude has had an abysmal start of the year.

As things stand, the price is hovering around $50 per barrel which is the lowest it's been in over 12 months.

A major, if not ONLY factor, that's resulted in the drop in brent crude is the Coronavirus.

As I write this, the virus has already infected more than 17,000 Chinese people and more than 350 have died. The numbers are rising on a daily basis where reports of cases have now spread to more than 15 countries.

With no slowdown in the spread of the virus, it's close to being declared a pandemic, which won't help the oil prices either…

Between the travel restrictions, the production cuts, the drop in demand and the Coronavirus epidemic causing havoc with global economies, I expect the oil price to crash another 22%.

Major travel restrictions = LESS FUEL

Early this year, the US State department recommended no travel to China due to drastic measures to contain the Coronavirus.

Since then the list of airlines halting travel to China has been on the increase including:

• Virgin Atlantic
• Air France
• British Airways
• Lufthansa
Lion Air and even
• Seoul Air.

There has also been a reduction in flight schedules to China from American, Delta, United, Finnair, Cathay Pacific, and Jetstar Asia.

The air travel stoppages weren't the only restrictions, which lead to a drop in fuel usage.

The Philippines halted visas on arrival to Chinese nationals, Singapore and Russia closed its borders to Chinese guests while Hong Kong stopped trains from China.

These few travel restrictions I mentioned, are showing a major drop in demand for fuel.

In fact, China, which imports more oil than any other nation, is already cutting its refinery production this month by 600,000 bpd because of the reduced demand.

This means, just with the travel restrictions alone, China's oil demand can drop as much as 20%, (or 3 million barrels per day)

The world oil giants are also cutting millions of barrels of oil per day as demand drops

BP's CFO Brian Gilvary told Reuters last week that, the economic slowdown brought on by the virus will reduce oil consumption for the entire year by 300,000 to 500,000 bpd. That is roughly 0.5% of global demand.

And when demand for a product drops, the price falls with it.

Worst yet, I’m seeing two extremely negative ( bearish ) patterns forming on the Brent Crude oil chart…

As you can see in the chart - I expect major downside to come
Trade closed: target reached: Well that happened quicker than expected...

Anyways, target reached and now will wait for the gap to close before making the next high probability trade analysis...


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