Is October a good month to buy oil?

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The price of crude oil is again below the psychological limit of 40 dollars
Demand for oil has weakened as air traffic is still restricted
Libya could return up to 1.1 million barrels per day of production
International Energy Agency (IEA) lowered its forecast for the demand for oil for 2020

The oil price is under pressure from the reported return of Libyan exports, but also from the fears of Covid-19. The price of crude oil has weakened from 40.7 to 37.6 dollars in less than a few days, and the current price is around 38 dollars.

Fundamental analysis: Demand for oil has weakened as air traffic remains restricted

The price of crude oil is again below the psychological level of $40 and this could be an indication that the price could fall even further in the coming days. Libya could give back up to 1.1 million barrels per production day, although the International Energy Agency (IEA) has lowered its demand forecast for 2020.

The Organization of Petroleum Exporting Countries agreed that the production cuts will remain in place until December, and this will ultimately drive the market in the coming period. The EIA forecasts that global oil demand in 2020 will be 93.1 million b/d, a decrease of 8.3 million b/d from 2019.

It predicts that demand will increase by 6.5 million b/d in 2021, and the price will also rise. The US dollar also has a major impact on commodities, and investors in oil should also have this currency on their “watch list”.

Demand for oil has weakened as air traffic is still restricted, and some reports suggest that global flights have fallen 26% year-on-year, reducing the need for aviation fuel. Pandemic restrictions also reduce fuel consumption, and it is important to note that India’s oil imports fell 23% to 15.2 million barrels per day in August.

Nevertheless, analysts remain “bullish” on oil and most of them expect oil prices to rise (a slow but steady increase) in the coming months.

Technical analysis: Crude oil price is again below the psychological level of 40 USD

The price of crude oil has continued to trade below the psychological level of USD 40, but investors trading oil are expected to be more active in the coming weeks.

Data source: tradingview.com

On this diagram I have marked important resistance and support levels. The important support levels are $35 and $30, $45 and $50 represent the resistance levels.

If the price jumps above $45 it would be a “buy” signal and we have the open path to $50. A rise above $50 supports the continuation of the uptrend and the next price target could be around $55.

If the price on the other side falls below $35, that would be a “SELL” signal and we have the open path to $30.

Summary

Demand for oil has weakened as air traffic is still restricted and some reports suggest that worldwide flights have fallen by 26% year-on-year, reducing the need for aviation fuel. The coronavirus crisis has reduced global demand for oil and OPEC has decided to limit production until December. In the medium term, crude oil prices will be linked to the global economic recovery and concerns about oil demand. I believe that the oil price may weaken further in October, but if the price jumps above $45, it would be a “buy” signal.

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