From last few weeks, global markets have become very volatile and uncertain. It all has to do with corona virus which changed the financial markets into a Black swan event. Most of the Market participants and media outlets are thinking that events unfolded by virus outbreak are deeply impacting equity markets. But the reality is “It’s not stocks but Oil prices which are deeply getting affected by Corona Virus”
Take a look at the Crude Oil 5h chart and see how closely the Price Action is related to the Events.
Crude Oil Price Action Analysis on 5h Chart
Exactly when china reported a serious SARS like Viral flu affecting its citizens, Crude Oil prices fell sharply followed by the announcement. It was the beginning of Structural downtrend in Oil prices, which eventually led to 600 points downfall.
After WHO – World health organization declared another high risk emergency, Crude Oil prices tumbled even further, creating multiple exhaustion gaps.
Based on these observations, it’s pretty clear that Crude Oil Market Sentiment and Price action is driven by news events related to Corona Virus outbreak.
So what’s the link between Oil prices and Corona virus?
Hypothetically, China is the largest consumer of Crude Oil. The potential outbreak of the Virus can create a potential slowdown in Chinese economic growth which in turn can impact the demand for Crude Oil. That’s one of the reasons why Oil is facing headwind.
Apart from that, During SARS epidemic in 2002 WHO and various countries implemented travel ban, this had a major impact on global oil demand. Such a scenario could play out once again because of Corona Virus.
Due to these factors Price Action is reflecting a Downtrend in Crude Oil. Hence there’s a clear synergy between Price Action of Crude oil and Corona Virus outbreak. Expect Crude oil to become more volatile in coming days. Traders should keep an eye on the news events and take decisions accordingly.
