The United States Oil Fund (USO) ETF lacked enough momentum to stage its first weekly gain after being in the red for four consecutive weeks. Earlier in Friday’s session, it had rallied to a level last hit over a week ago.
On the one hand, investors are still holding a neutral stance on crude oil’s price movements. However, the market expects an improved immediate-term demand outlook from the two leading economies. Concerns over the probable interruption of Russian crude supply have also bolstered oil prices.
So, what next for the USO ETF as it forms a perfect ascending triangle chart pattern?
Oil market anticipates increased immediate-term demand from the US & China
The US Oil Fund found support in the latest gasoline stocks draw, although the build in crude inventories curbed its gains. Data released by the Energy Information Administration (EIA) on Thursday showed that the US crude stockpiles increased by 4.6 million barrels for the week ending on 14th February. The figure was higher than the forecasted build of 3.1 million barrels, pointing to eased demand.
Even so, the weekly report indicated that distillate and gasoline stocks dropped by 2.1 million and 151,000 respectively. Analysts expect the US oil demand to remain strong in the near term as the current cold weather persists.
Besides, the end of the lengthy Chinese new year holiday is set to bolster oil demand and prices. Notably, the Asian country is the second-largest consumer and leading importer of oil.
Probable disruptions of Russian oil supply support US oil
Investors remain uncertain over a near-term peace deal between Russia and Ukraine as President Trump takes an unexpected turn on the matter. While lashing out at the Ukranian President, Trump referred to Zelensky as a “dictator”. He further noted that Russia has “the cards” and wants to see the war end. This comes after Zelensky accused Trump of “living in a disinformation space” governed by Putin.
Amid the chaos, investors are increasingly doubting the possibility of a Ukraine-Russia peace deal in the immediate term. In the absence of this truce, disruption of Russian oil supply is likely. Indeed, it is one of the factors that has bolstered the US oil fund and broader crude oil prices.
For instance, a recent Ukrainian drone attack on a pumping station in southern Russia lessened oil supplies for Kazakhstan and the wider globe. According to Russia, the attack reduced Caspian Pipeline Consortium oil flows by between 30-40%. Notably, that is a crucial route for exporting crude oil products from Kazakhstan.
Besides, the G7 countries is considering tightening Russian oil’s price cap as a way of curbing the country’s oil revenues. The group is set to release a statement on the matter on 24th February; the day marking the 3rd anniversary of the Russia-Ukraine war. Currently, the price limit for Russian crude is at $60 per barrel.
However, according to Goldman Sachs, the disruptions of Russian oil supply go beyond the peace deal or lack thereof. The investment bank argues that the country’s constrained supply is due to its output cuts as part of the OPEC+ production decision. At the same time, there are unsubstantiated rumours that the group may postpone the easing of its production cuts, which is set to begin in April.
Read more: Oil prices set for biggest weekly gain since January: what’s driving the rally?
USO ETF stock analysis
USO ETF chart by TradingView
The weekly chart shows that the USO ETF stock has retreated in the past five consecutive weeks as Donald Trump restarted negotiations with Russia. That is a sign that the two countries may patch their relationship, which will lead to tariffs being removed and higher oil production.
Donald Trump has also pledged to boost US oil production, which he believes is a good thing to lower inflation. The ETF has formed what looks like a perfect ascending triangle pattern whose higher side is at $83.30. It is a few points above the ascending trendline.
Therefore, the most likely scenario is where the USO Fund continues falling as bears target the ascending trendline. It will then bounce back, and possibly retest the triangle’s resistance level at $83.30. A move above that level will point to more gains, possibly to $92.28, the highest swing in June 2022.
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