The resurgence of the United States Oil Fund (USO), a commodity ETF that tracks the price of West Texas Intermediate light, sweet crude oil (WTI), has sparked intense debate among investors and traders – will USO soar to the $83 mark? While a definitive answer is subject to a plethora of interrelated factors, there are some key levels that every market watcher should closely monitor.
Fundamentals of USO have been greatly influenced by global macroeconomic factors. To understand the prospects of USO hitting the historic level of $83, one must delve into the supply-demand dynamics of oil in the international market.
In terms of supply, the Organization of Petroleum Exporting Countries (OPEC) holds a considerable influence. One developmental aspect to watch is the production cut decisions made by the OPEC and non-OPEC allies, colloquially known as OPEC+. If OPEC+ decides to extend their production cuts, the resulting supply squeeze could push WTI and in turn, USO prices upwards.
Also, the trajectory of shale oil production in the US is a significant determining factor. A rise in the production levels could oversupply the oil market, potentially pushing prices down. In contrast, any decrease in the number of operational oil rigs might add upward pressure to the prices.
On the demand side, the economic recovery post-pandemic is a critical factor. As countries around the world overcome COVID-19 and regain their economic vitality, the demand for oil will likely increase, driving up its price. However, any setbacks, including the resurgence of COVID-19 cases or further lockdown measures, could halt the economic recovery and subsequently suppress the demand for oil. Hence, monitoring the global economic recovery is crucial for predicting the price trajectory of USO.
Another influencing aspect is the green transition. Many countries are shifting towards cleaner energy sources to combat climate change. As cleaner energy sources become more efficient and prevalent, demand for oil might decrease in the long term, which could create a headwind for the USO price.
The geopolitical landscape also plays a pivotal role in shaping the future of USO, as shown historically. Events such as geopolitical tensions in oil-rich regions or tariff and trade policy changes can disrupt the global oil market.
Turning the lens to the technical analysis, USO has some key levels to watch out for. As of now, USO needs to breach the resistance at $60 to commence a new bullish trend. If USO trades above this level, this could possibly lead to an upward trend towards the $83 mark.
There is, however, substantial resistance at $75. This level, last seen in 2014, could pose a major challenge, hence it deserves close monitoring.
In conclusion, while the possibility of USO soaring to $83 remains, it is dependent on a complex interplay of factors, including supply-demand dynamics of oil, the progress of economic recovery post-COVID-19, the march towards green transition, geopolitical events, and critical technical resistance levels. Therefore, it’s vital for investors and traders to pay extra attention to these aspects when predicting the future trajectory of the USO.
