Considerable debate continues to surround oil and the related exchange traded products, such as the United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, and the United States Brent Oil Fund (NYSEArca: BNO), which tracks Brent crude oil futures.
However, some energy market observers are clear in their assessments and they see oil trading higher in the coming months. Some professional traders do not see the current oil bear market lasting very long. Still, some concerned oil market participants believe oil is rallying without strong fundamental cause. A case can be made that oil’s rally is defying still troubling supply dynamics and tepid demand.
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Elevated levels of production remain an issue for oil as well. OPEC has kept up production to pressure high-cost rivals, such as the developing U.S. shale oil producers. The International Energy Agency expects it will take several years before OPEC can effectively price out high-cost producers.
“Despite bearish outlooks like from Goldman Sachs, which predicted this week that oil will be trapped in the $45 to $50 range, Orips Research chief market technician Zev Spiro sees oil surging again. This time, it could rally about 50 percent above current levels,” reports CNBC.
[related_stories]However, many traders remain bearish over the short-term, betting on weakening seasonal trends. Money managers increased wagers on declines in oil prices to a record on increasing U.S. inventories and ahead of a seasonal refinery maintenance that will curb crude demand – futures have dipped in each of the past five Septembers, reports Mark Shenk for Bloomberg.
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In addition to commodities plays, investors should consider equity-based ETFs, such as the Energy Select Sector SPDR (NYSEArca: XLE) due to some anomalies with the energy’s sector weight in broader equity indexes. XLE, the largest energy sector ETF, is one of this year’s best-performing sector funds.
“According to Spiro, oil’s impending rally has been building from a technical perspective since last year. Looking at a weekly chart of crude, Spiro points out that a “head and shoulders bottoming pattern” began in July of last year. An inverse head and shoulders pattern like the one on Spiro’s weekly chart is seen as an indication that an uptrend could be on its way,” according to CNBC.
For more information on the crude oil market, visit our oil category.
United States Oil Fund
