April 20th was a historical day for global financial markets as the price of oil tanked below zero, closing at -$36 per barrel of crude at market close. Never before has an oil crash of this magnitude occurred in anyone’s lifetime and uncertainties abound. Naturally, the oil price plunge triggered massive selloffs in the stock markets and even the crypto market was not spared with Bitcoin dropping below $7k. At the moment, however, BTC is clinging to a crucial support level, leaving investors with hope for a near-term recovery.
After struggling to get past the $7,200 resistance, the price of Bitcoin experienced a descent below the $7,000 support level and bottomed at $6,765. However, at the next candle, BTC recovered and settled at the crucial $6850 support. At the time of writing, BTC is changing hands at the $6850 to $6970 support levels. A fresh rally could see the number one cryptocurrency reclaiming the $7,000 levels and even surging past the $7,300 resistance. If it fails to defend this key support, however, the price may drop further towards the key $6,550 support zone.
Most major altcoins also experienced downside corrections, with ETH, XRP. LTC, BNB, TRX and several other coins recording losses. Ethereum’s price went down almost 8%, dropping to the $168 support level before posting a recovery that sees it trading above $175 at the time of writing. Similarly, XRP went down but bounced off the $0.178 region and is currently trading above $0.186.
With cryptocurrencies holding steady in the green amidst the chaos, there is hope for a near-term recovery and even a new rally. Still, everything remains speculative at this point.
The Unprecedented Oil Price Slump is mostly Responsible
With the price of oil trading in the negative, it was only a matter of time before the ripple effect caught up with other traded assets. On Monday, April 20th, the price of the West Texas Intermediate (WTI) futures contracts recorded its lowest ever prices ever, trading below $0. This price crash severely affected the S&P 500 index, the Dow and several other indices, plunging the markets in a sea of red.
The main reason for this plunge is that there is simply too much global supply and not nearly enough demand. The COVID-19 pandemic has depleted global economies to the point where storage tanks are full and the costs of setting up new storage facilities are prohibitive. Reacting to the news, OCBC Bank’s economic strategist, Howie Lee, stated that countries must quickly solve the storage issue or risk another bout of negative trading.
“The inability to store means it matters little that a refiner had earlier bought crude oil at the low $20s if they cannot find a space to store the oil, their purchase is as good as moot…. The lack of storage/expensive storage is unlikely to be resolved unless demand either improves, or the US cuts its output.” Lee said in a recent interview.
At the time of writing, the price of oil is back trading in the positive, though it remains to be seen if this an actual recovery or the proverbial calm before the storm.