Oil prices are cooling off. For example, the United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, is lower by more than 5% over the past week, but some analysts believe crude is not yet in technical danger.
USO recently slumped below its 20- and 50-day moving averages and the fund is nearly 10% below its most recent 52-week high, putting it close to being in an official correction.
Current OPEC compliance with production cut plans remains above their historical average, and it usually takes between two to three quarters for inventories to normalize after the cuts. While demand has yet to catch up to elevated supplies, rebounding economies in Europe and steady economic growth in the U.S. could prompt more upside for oil this year.
“At this point in time, the charts just look like a pullback within the context of a bigger uptrend,” Craig Johnson, chief market technician at Piper Jaffray, said in an interview with CNBC. “We’re right back to the 50-day moving average, we’re retesting that at about $67.50 … and it looks like just a normal pullback.”
Some Rough Days for Oil
After surging for much of the second quarter, crude has been slammed in recent trading sessions.