Using recent price action as a measuring stick, it is hard to criticize the United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures. USO, the most widely followed and heavily traded oil exchange traded product, is up 4.4% over the past week and nearly 9% over the past month.
However, plenty of traders and oil market observers believe crude remains vulnerable to a near-term downside. 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 the big picture, the Elliott wave pattern of the decline since 2008 has taken the form of an A-B-C correction for the United States Oil Fund (USO). Downward wave ‘C’ began in June 2014, and it should consist of five sub-waves. On a monthly chart, the fifth and final of those sub-waves appears to be nearly finished. USO’s price tested and bounced from channel support basically as we had sketched on an earlier chart ten months ago,” according to See It Market.
Traders looking to profit from falling oil prices have plenty of ETF options, including the ProShares UltraShort Bloomberg Crude Oil (NYSEArca: SCO), which tries to reflect the two times inverse or -200% daily performance of WTI crude oil, and DB Crude Oil Double Short ETN (NYSEArca: DTO), which also follows a -200% performance of oil.
OPEC plans to diminish output to a range of 32.5 to 33.0 million barrels per day from its current estimated output of 33.24 million barrels per day. While Saudi Arabia, OPEC’s biggest producer, has agreed to reduce output, Iran, Libya and Nigeria might not follow suit.
Obviously, production is a key element in the decision-making process regarding energy investments. Currently, oil investors face conflicting reports regarding output. For example, Venezuela’s crude output is plunging to multi-year lows while Algeria is looking to boost production.
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If price indeed needs to make another low, it might embark from near the present area that has resistance at 11.55 and also at 12.00. The prospect of a downward turn appears favorable since the adaptive CCI indicator at the bottom of the weekly chart is testing near its zero line – an event that often coincides with reversals. October also lines up as a projected high in the 60-week cycle that we monitor on futures charts,” adds See It Market.
For more information on the crude oil market, visit our oil category.