Yahoo Finance U.S. Oil Hovers Around $83: What Lies Ahead for ETFs?
U.S. crude oil hit $83 a barrel on Apr 23, 2024 on optimism that weak manufacturing data could result in interest rate cuts. U.S. manufacturing activity hit a four-month low of 49.9 in March, according to the S&P Global Flash U.S. Composite PMI. A reading below 50 indicates that activity is contracting.
Slowing Manufacturing Activity to Boost Oil Prices?
Slowing manufacturing activity may instigate the Fed to cut interest rates earlier-than-expected. Lower borrowing costs typically boost activities in the economy and, thereby, crude demand. As a result, oil prices jumped. United States Oil Fund LP USO has gained 2.9% in the past month (as of Apr 23, 2024) and is up about 18.2% this year.
Phil Flynn, senior market analyst at the Price Futures Group, said renewed hopes for rate cuts are “giving oil a new sense of life here, especially after it’s already sold off quite a bit,” as quoted on CNBC. U.S. oil prices also briefly dipped below the 50-day moving average of $81.22 a barrel for the first time since early February.
Investors should note that U.S. oil prices currently remain over $5 below this year's peak of $87.62, which was reached when traders raised prices due to concerns about a potential war between Iran and Israel. These worries have mostly faded as Iran and Israel have indicated they do not wish to escalate to a broader conflict, despite exchanging strikes earlier this month.
About Iran Sanctions
Over the weekend, the House of Representatives approved a bill that would expand sanctions on Iran's oil exports. The Senate may consider the bill for a vote this week. According to the legislation, President Joe Biden must impose sanctions within 180 days after the bill is enacted. However, he has the discretion to waive these penalties if he believes it serves the national security interests of the United States.
In fact, the director of research at Energy Aspects stated that the Biden administration is worried about elevated oil prices and will leave no stone unturned to keep prices lower as the 2024 election approaches, as quoted on CNBC. Overall, it will be a tough decision for the United States as the sanctions against Iran, if fully implemented, will likely result in higher gas prices while President Biden seeks to keep it low.
A Technical Look at U.S. Crude ETF USO
While we take a look at United States Oil ETF (USO) — one of the popular oil ETFs on the market, with AUM of $1.59 billion and a trading volume of roughly 4.48 million shares a day — the uptrend is more visible.
The fund USO is currently trading at a 4% discount to the 52-week high of $83.41 per share. Its short-term moving average (50-Day average is 76.76) is higher than the long-term average (200-Day average is 73.64). This suggests continued bullishness for this ETF.
Overall, USO is likely to stay strong going forward, but the fund should not gain materially given the Biden administration’s efforts to keep energy prices lower. But the long-term picture is, rather, more hopeful.
The 100-Day Relative Strength for USO is 53.62%, reflecting the fact that the fund stays far from the overbought territory. Once the Fed starts cutting rates, crude prices will likely soar helped by increased economic activities.
ETFs in Focus
Along with USO, investors can keep a close tab on United States 12 Month Oil Fund LP USL, Invesco DB Oil Fund DBO and ProShares K-1 Free Crude Oil Strategy ETF OILK. While USO has jumped 18.2% so far this year, USL, DBO and OILK have gained 14%, 12.1% and 14.2%, respectively.
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United States Oil ETF (USO): ETF Research Reports
Invesco DB Oil ETF (DBO): ETF Research Reports
United States 12 Month Oil ETF (USL): ETF Research Reports
ProShares K-1 Free Crude Oil Strategy ETF (OILK): ETF Research Reports
