USO ETF: oil price steadies as current reality offsets future woes

USO, an ETF that tracks the price of the WTI light sweet crude oil, reversed its plight to trade above the short and medium-term MAs on Tuesday. It had plunged below these technical indicators on Friday as investors weighed the persistent supply and demand concerns. 

Steady Chinese imports and geopolitical risks appear to offset oversupply woes. At the time of writing, USO oil price was at $75.05; having risen by over 3% over the past two sessions. 

Status quo to limit oil price decline 

Crude oil price has remained within a $5 trading range since early August as investors weigh the supply/demand dynamics. On the one hand, concerns over slow economic growth and looming oversupply have exerted pressure on USO oil price. 

However, geopolitical risks and China’s efforts to stock up on crude oil have steadied the market; holding Brent oil price above $65 per barrel. As such, while the persistent supply and demand concerns are expected to sustain the selling pressure, there is an aspect of reality that is set to limit the plunge.   

In the ensuing sessions, USO oil price will also be reacting to the US dollar in relation to the upcoming economic data. Notably, the greenback remains under pressure as investors assess the impact of President Trump’s trade policies on the economy and the path of the Fed’s interest rates. It has been trading sideways for three consecutive sessions as the bulls lacked enough buyers to reverse the trend that has seen the dollar remain below the 25 and 50-day EMAs for several months. 

In the near term, the US dollar will likely record subtle movements ahead of the GDP and PCE inflation data. It may reverse its recent gains if the GDP slated for release on Thursday shows signs of a slowdown. Besides, Friday’s inflation figures may show that the Fed’s war against inflation is far from over. A weaker US dollar tends to support crude oil prices by making the commodity less expensive for buyers holding foreign currencies. 

USO ETF technical outlook

USO oil price extended gains from the previous session, reversing the trend that has seen it hit a two-week low at the start of the week. The plunge that set off in the previous week pulled it below the short-term 25-day EMA and medium-term 50-day EMA. However, the entry of more buyers has reversed the status quo, with the asset trading above the two MAs as at the time of writing. 

Notably, these indicators have converged at $74.40; a level that supported USO oil price during Tuesday’s rebound. Despite the over 3% rebound, the asset may remain within the $5 range that has been in place since early August. Indeed, its RSI of 53 hints at range-bound trading at least in the short term.

In line with these technical indicators, the range between the current resistance level of $75.29 and the support at $73.70 will be worth watching in the ensuing sessions. Further rebounding will likely curb the gains at September’s high of $76.55. On the flip side, this cautiously bullish thesis would be invalidated by a pullback below the support zone of $72.77.