USO ETF analysis: crude oil on edge amid supply concerns

USO crude oil price hit a one-week low on Wednesday as the US inventory figures amplified oversupply concerns. Data from the Energy Information Administration (EIA) confirmed the surprise crude oil inventory buildup as the government strives to rebuild its Strategic Petroleum Reserve. However, the pressure on the oil market was somewhat offset by the decline in gasoline inventories.

Besides, the rebounding of the US dollar has curbed crude oil price gains in a similar manner as other dollar-priced assets. The dollar index, which tracks the performance of the greenback against a basket of six major currencies, hit its highest level since the end of May. Ordinarily, a stronger US dollar makes crude oil more expensive for buyers holding foreign currencies.                                                                                                                                                                                                                                                                                                                                                       

Crude oil price drops on looming supply glut

USO crude oil price is under pressure as investors weigh on a supply glut in coming months. Data released by the American Petroleum Institute (API) showed an inventory build of 6.5 million barrels for the week that ended on 31st October. This places the year’s stockpile net gain at 3.6 million barrels. 

The official government data released on Wednesday confirmed this trend, with the EIA highlighting a build of 5.20 million barrels compared to the previous week’s draw of 6.85 million and the forecasted decline of 2.50 million. 

Besides, according to the US Department of Energy, crude oil inventories at the Strategic Petroleum Reserve surged by 500,000 barrels in the last week of October. The government has been keen on rebuilding the nation’s crude stocks, which fell to its lowest level in decades during the previous administration.   

However, data from the EIA indicated a decline in gasoline inventories; signaling resilient demand. According to the released figures, gasoline stockpiles dropped by 4.729 million barrels. While it was lower than the previous week’s draw of 5.941 million barrels, it was significantly higher than the forecasted decline of 1.50 million barrels.

At the same time, the rebounding of the US dollar is weighing on crude oil and other dollar-priced assets. On Wednesday, the dollar index hit a level last recorded in late-May as concerns over AI stock valuations fueled a risk-off mood. 

USO oil price technical analysis

On Wednesday, USO erased the gains made at the start of the week, dropping to a one-week low as investors weighed on the supply outlook. A look at its daily chart shows crude oil price trading below the short and medium-term EMAs. This is a sign that the asset may remain under selling pressure for a while longer. However, it will likely hold steady above the crucial support zone of $70 amid the resilient demand.

In the short term, USO crude oil price may rebound slightly to trade within the range of between $72.77 and $71.26. Beyond that range, the gains may be curbed at $73.70. On the flip side, the possible pullback may still maintain $70 as a steady support zone.