Covid flare-ups and an overbought crude market broke one of the longest oil uptrends in years.

Reports of covid surges in India, Europe, and Brazil had oil traders questioning whether they were spiking the covid vaccine football a little too fast. France is going back to lockdown mode and the pause in Europe of the use of AstraZeneca vaccine after blood clot concerns raised significant demand growth concerns. Yet even as Europe now says that the AstraZeneca vaccine is safe, it has not eased fears that the worst is over. Joe Biden is warning that while meeting his goal of administering 100 million covid-19 vaccination shots in his first 100 days more than 40 days ahead of schedule, he suggests that we are far from being out of the woods with new strains of the virus raising concerns that the covid 19 story is not over.

The crude oil market also got shaken on a report that Saudi crude oil exports jumped in January for a seventh straight month to the highest since April 2020, according to the Joint Organization Data Initiative (JODI) website on Thursday. Crude exports from the world’s biggest oil exporter rose to 6.582 million barrels per day (bpd) in January from December’s 6.495 million bpd. Total crude and oil products exports rose to 7.75 million bpd in January from 7.71 million bpd a month earlier as reported by Reuters.

Other contributing factors to the oil sell off were numerous. Rising yields and a strong dollar also did not help the oil market. Continuing sanction violations by China, Venezuela and Iran are also suggesting that Venezuela and Iran’s oil will continue to find its way to China. The April crude contract also expires today adding to the selling.

While there is no doubt that the oil market and products are in price trouble and could see more downside technically, in the long term this break needs to be bought. The oil price break increases the odds that OPEC plus cuts will be extended until the end of summer. The price break will discourage an uptick in U.S. shale production. In other words, we fully expect that after this dramatic correction is over, we will resume the price surge. In the short term, the damage to the charts means you could see more downside. March came in like a lion for oil and products but may go out like a lamb. By April we should see significant price increases and global inventories plummet. While the covid full recovery gets pushed pack until late this year and the demand come back is slightly delayed but is still on an upward trajectory.

Phil Flynn
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