USO stock: What next for the top crude oil ETF?

The United States Oil Fund (USO) has held steady above the previously strong resistance zone of $68 per barrel following the US-China temporary truce. However, it lacked enough bullish momentum to retest the psychologically crucial level of $70 following EIA’s report on US inventory build. 

The surge in US supply, coupled with the OPEC+ decision to increase production in June for the second month in a row, is weighing on the supply-demand dynamics. Besides, the probable US-Iran deal is further fueling concerns about oil oversupply. 

US oil inventory build, Iran deal heightens concerns over a global supply glut

USO lacked enough bullish momentum to retest the crucial zone of $70 on Wednesday after the US Energy Information Administration (EIA) confirmed a surprise oil inventory build. According to the agency, crude oil stockpiles rose by 4 million barrels in the week that ended on 9th May. 

Earlier in the week, the US Department of Energy highlighted that crude oil inventories within the country’s Strategic Petroleum Reserve (SPR) surged by 500,000 barrels in the same week. Even so, the SPR inventory levels are still significantly lower than they were during the SPR withdrawal under the previous government.  

The reported US oil inventory build has added onto the concerns of a probable global supply glut as OPEC+ plans to increase production in June. The organization of petroleum exporting countries and its allies, whose production accounts for close to 60% of the world’s crude oil, is set to increase production by 411,000 bpd in June. 

This will be the second straight month of supply increase as the group remains optimistic on crude oil demand. In a report released on Wednesday, the alliance maintained a positive demand outlook, forecasting that oil demand will surge by 1.3 million bpd in 2025 and 1.28 million bpd in 2026. These figures are founded on its expectations of healthy road and air travel.  

Notably, OPEC’s forecast is significantly higher than those of other entities, including the International Energy Agency (IEA) which expects oil demand to grow by 726,000 bpd in 2025. At the same time, Goldman Sachs predicts oil demand will rise by 300,000 bpd in 2025 and 400,000 bpd in 2026.

Even with OPEC’s optimism, the broader oil market agrees on the persistent macroeconomic uncertainties and their impact on the economic growth outlook. While the US-China trade deal has bolstered crude oil prices, investors are still concerned over the impact of Trump’s aggressive tariffs on the economy.

Additionally, the probable US-Iran nuclear deal is weighing on USO and the broader crude oil market. On Thursday, President Trump asserted that the United States is “in very serious negotiations with Iran for long-term peace”. On its part, Iran is prepared to sign an agreement if all the imposed economic sanctions are lifted. 

Such a deal will likely have Iranian oil back in the market, further impacting the supply-demand dynamics. Prior to the 2018 oil sanctions, Iran’s production capacity was at 3.8 million bpd. As of now, its supply is around 1.6 million bpd.  

Read more: Brent crude oil price forecast by Citi, Goldman Sachs, and Morgan Stanley

USO ETF stock price analysis

USO fund by TradingView

The daily chart shows that the USO ETF stock price has remained under pressure in the past few months. It moved from a high of $84.3 to a low of $60.68, its lowest point this year. 

The USO ETF has remained below the 50-day and 100-day Exponential Moving Averages (EMA), a sign that bears are in control.

Most importantly, there are signs that it has formed an island reversal pattern. Therefore, the fund will likely remain in this range for a while. The key support and resistance levels to watch are $65.9 and $70. A move below $65.91 will point to further downside in the near term. On the other hand, a move above $70 will point to more gains.