The United States Oil (NYSEArca: USO), which tracks West Texas Intermediate futures, and other oil-related exchange traded products were drubbed again last week despite speculation that the Organization of Petroleum Exporting Countries (OPEC) is weighing production cuts amid slumping prices.
Further dragging on the oil outlook, OPEC and other forecasters have signaled that the global oil market could produce a surplus in 2019 on slowing demand, despite a dip in Iranian oil exports after U.S. sanctions recently went into effect. Compounding those woes are eroding technicals for crude oil and ETFs like USO.
“We’ve seen the completion of the target from a head and shoulders bottom back in 2015-2016. It went directly up to $78-$79 [a barrel],” said Wall Street technician Louise Yamada in an interview with CNBC. “”This has been a severe setback. We were looking for a weakness towards the trend. It’s actually broken the trend.”
The pull back in oil prices has been attributed to increased production fro non-OPEC members, namely Russia and U.S. shale in anticipation of the drop off in supply from the Iran sanctions.
Furthermore, the U.S. government recently decided to soften its oil sanctions on Iran, which exacerbated the supply surplus concerns.
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“On Wednesday, WTI snapped its longest losing streak ever, down 12 days in a row. Due to the severity of the oil decline, Yamada isn’t eliminating the chance of a near-term bounce to the $59 to $60 a barrel. However, she’s convinced there’s a low probability it’ll stick, referring to how crude has traded since its all-time high of $145 a barrel hit back in July 2008,” according to CNBC.
Oil analysts point to a combination of higher-than-expected output from key producers and a gloomy outlook for oil demand. The decline in prices is an about-face from last month’s rally that saw oil hit four-year highs based on the assumption that supply would be crimped due to reduced output from Iran as a result of the U.S. leveling sanctions.
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