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.
“Crude touched its 50-day moving average during Friday’s brutal sell-off. West Texas Intermediate declined by 4 percent over the session and hit its lowest level since May 3. Over the past five sessions, crude tumbled 4.8 percent in its first negative week in a month and its worst weekly drop since Feb. 9,” according to CNBC.
As prices rose, speculation rose that OPEC could up production and bring new supply to market. Asia could provide a supporting pillar for the energy market as demand among Asian economies is expected to surpass $1 trillion this year, or twice as much as in 2015 and 2016. Asia-Pacific consumers consumes over 35% of the 100 million barrels of oil the world uses per day and the percentage is only rising, Reuters reports.
“Saudi Arabia, the cartel’s largest producer, and non-OPEC member Russia are reportedly considering easing back on their supply cuts,” reports CNBC.
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