WTI rejected at key hurdle as major traders foresee demand decline

• Oil struggles to penetrate the head-and-shoulders neckline hurdle. 
• Trafigura and Vitol warn of coronavirus-led demand destruction. 

The US oil prices failed to cut through a crucial technical hurdle on Tuesday as global oil traders warned of coronavirus-led demand destruction. 

Global oil trading giant Trafigura's Executive Chairman & Chief Executive Officer Jeremy Weir said that the second virus wave would see demand decline by about 1 million barrels per bay (bpd) in the US and 1.5 million bpd in Europe. Meanwhile, Vitol CEO Russell Hardy predicted a reduction in demand by half a million bpd across Northwest Europe.

Major European countries such as Germany, France, and the UK have reimposed the economically-painful lockdown restrictions, which are likely to last at least four weeks. As such, oil demand is likely to decline, as predicted by Trafigura and Vitol. 

So far, comments by major oil producers have helped oil sellers defend the former support-turned-resistance of the head-and-shoulders neckline of $37.34. However, that hurdle could be breached if major oil producers support Saudi Arabia's decision to extend the output cut deal. Sources told Energy Intelligence on Monday that the Russian oil companies are open to extending the current OPEC+ output cut deal of 7.7 million barrels per day if the bearish market conditions persist. 

Besides, looking at the recent decline from $41.90 to $33.64, it appears the market has priced in the impending drop in demand. At press time, the West Texas Intermediate crude is trading at $36.88 per barrel. 

Technical levels