What is going to happen with crude? Two sessions ago, black gold dropped 7% to trade in the $35 region. Yesterday, crude hovered near break even. Today, we have the weekly crude inventory report -- which should have a modicum of impact on crude's price.
What I find interesting is the fact that we haven't seen the relief at the pump yet. I know that the Cushing, OK reserve is fully stocked and some of the crude sent to the stations is still from a time when black gold was worth more. But we have to be getting close to the $35-per-barrel stuff, right? I know right now I pay roughly $2 per gallon -- and I know, I should quit whining, but still....
When trying to discern the future for crude, I like to look at the United States Oil Fund (NYSE: USO) exchange-traded fund (ETF). This basket of crude companies has seen better days, and could now be attractively priced -- if you totally ignore technical performance.
USO has seen "crazy high" volume since the end of the past year, and this pattern should continue to persist as volatility remains the name of the game. The most discouraging aspect for USO is all of the overhead resistance it faces.
The ETF is in the wake of an eight-month slump that started in July 2008. During this drop, USO has met with resistance at its 10-week moving average on a consistent basis -- and on a consistent basis, the shares have cowered away from this resistance.
I'm not sure there is anything that OPEC can do to ignite a spark beneath crude, as it has already drastically cut output. Any further output cuts could undermine the viability of the cartel -- especially with new countries joining in on the crude game.
Is the oil patch going to continue acting as a house of pain? It sure seems that way, but I wouldn't put a rally out of the picture.
USO has seen "crazy high" volume since the end of the past year, and this pattern should continue to persist as volatility remains the name of the game. The most discouraging aspect for USO is all of the overhead resistance it faces.
The ETF is in the wake of an eight-month slump that started in July 2008. During this drop, USO has met with resistance at its 10-week moving average on a consistent basis -- and on a consistent basis, the shares have cowered away from this resistance.
I'm not sure there is anything that OPEC can do to ignite a spark beneath crude, as it has already drastically cut output. Any further output cuts could undermine the viability of the cartel -- especially with new countries joining in on the crude game.
Is the oil patch going to continue acting as a house of pain? It sure seems that way, but I wouldn't put a rally out of the picture.
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Reader Comments (Page 1 of 1)
2-19-2009 @ 9:16AM
JCH said...
Pump prices have gone up because refineries have cut back to meet lower demand.
They are under absolutely no obligation to refine themselves into the ground just so you can have cheap gasoline.
If necessary, OPEC will have to cut production again to the existent demand level. There is no place to store extra oil except in the earth. So they will have to leave it there.
Think about it.
2-19-2009 @ 10:55AM
musicman said...
USO is not a "basket of crude companies" - that would be OIH.
USO attempts to track the spot price of oil, but it does it poorly when oil is in contango.
Better trackers of oil in contango are DBO and USL.
--joe