United States Oil Fund (USO) Technical Analysis: Short-Term Strength Interrupts Intermediate Downtrend

In light of what technicals point toward, Bidness Etc believes that investors should accumulate United States Oil Fund LP (ETF) (NYSEARCA:USO) shares on the current weakness, and expect disturbed selling at price levels of $19.81 and $18.21. The exchange traded-fund, which tracks the movement of crude oil prices in the US, closed the trading session on Friday at $20.52.

A short-term base anchored at a low of $15.61 on March 2015 has enabled the ETF to surpass February’s high of $20.29, interrupting the intermediate downwards progression. This base has enough strength to support a rise toward $22.41, which may extend further toward the maximum target of $26.62.

Any downside from here is likely to remain limited at a support around $18.21, placed just below the 50- and 100-day averages, with inner support around $19.81. In the process of a short-term rise, the 14-day Relative Strength Index (RSI) has also surpassed the bear market readings supporting the bullish theme. This outlook would remain valid up to the end of June 2015, with price risk defined below $16.79.

Since the beginning of the year, the ETF has traded up by 0.79%, returning 16 cents per ETF to investors. During 2014, the ETF had traded down by 43.19%, as a supply glut in the global crude oil market caused US crude prices to lose value.

However, since the beginning of the year, a recovery has been seen in the price of the commodity, with investors believing that the supply from the US, which had reached record highs, would fall. Baker Hughes Incorporated (NYSE:BHI) reported last Friday that there were 888 rigs operational in the US, 973 lower than those on record at the same time last year.

Rigs have been closing down in the country as a result of the low prices of the commodity, at which the operations are no longer sustainable. However, the rig closures have curtailed the oversupply in the country, which has led to the US Energy Information Administration (EIA) reporting a draw in the inventory levels in the country. Last Wednesday, the EIA reported that the inventory levels in the US had fallen by 2.2 million barrels during the week ended May 8.

Unrest in the Middle East, with the strike in Libya, Saudi Arabian air strikes in Yemen, and Islamic State’s recent capture of Iraq’s Ramadi, has also led to investors believing that crude oil supplies from the region would be curtailed. However, the Organization of Petroleum Exporting Countries (OPEC), led by Saudi Arabia, is expected to increase its production rate to keep market share, in turn adding to the oversupply.

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