The United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, fell 3.25% last Friday on more than double the average daily volume, bringing its loss for the week to 1.73%. While that snapped oil’s longest weekly winning streak in several years, some market observers this year’s surge in crude can continue.
“The commodity has plummeted 5% since Monday, its first negative week in eight. Losses accelerated on Friday after President Trump said he called on the Organization of Petroleum Exporting Countries to act to bring global oil prices lower,” reports CNBC.
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.
Still, USO looks mostly healthy on a technical basis on the benchmark oil ETF would need to rally another 19.40% to reclaim its 52-week high.
Talking Technicals
“I’ve been very upbeat on crude oil since February. This hasn’t changed,” said Bill Baruch, president of Blue Line Futures, in a CNBC interview. “The uptrend is still intact. There’s a trendline from December that is right at $63 [and it closed below it]. But that doesn’t mean it’s over.”
Crude prices plunged 44% from a multi-year high in early October through the nadir on Christmas Eve as investors ditched energy in response to rising pessimism over global economic growth and potentially diminished demand across a range of commodities.
Looking ahead, fundamentals are improving. The International Energy Agency projects consumption to increase each quarter of 2019 year-over-year, albeit at a slower-than-usual pace for the first quarter. Meanwhile, on the supply side, Saudi Arabia and other members of the Organization of Petroleum Exporting Countries have been cutting output. Additionally, U.S. sanctions on Iran and Venezuela have reduced further bets on international supplies.
Investors have pulled nearly $155 million in the current quarter.
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