ETFs

Black Gold’s Levels Are Sustainable

By Kevin Grewal

Crude oil has rallied this week north of $75/barrel and it appears that there are plenty of signs which indicate that it can sustain these levels.

First, there are signs that the U.S. economy is in recovery mode. Government reports showed that the number of Americans filing first time claims for unemployment benefits dropped last week and that the cost of living in the U.S. rose at a slower pace in September. 

Next, a report released by the Energy Department showed an unexpected decline in stockpiles of gasoline.  Inventories of motor fuel tumbled by 5.23 million barrels last week, marking the biggest decline since September 2008, and supplies of distillate fuel fell by more than 1 million barrels.  Additionally, gasoline outputs declined to their lowest levels in over a year and refinery utilization slipped to its lowest levels since April.

From a demand perspective, it is expected that many refineries will start to build up crude stocks in preparation for the winter months, and this, in conjunction with a decline in gasoline supplies and anticipation that demand will remain relatively constant or perhaps even increase, will likely put price pressures on crude in the coming weeks.  

From a supply perspective, the Organization of Petroleum Exporting Countries (OPEC) announced that it will decrease shipments 0.4 percent in the four weeks ending Oct. 31.  Additionally, a recent report indicated that inventories of crude oil rose by 334,000 barrels to 337.8 million, as opposed to the forecasted amount of an increase in supply by 1 million barrels.

Lastly, from a technical perspective, the fundamentals of crude suggest that it is strengthening.  Both MACD and RSI are moving northward indicating a greater probability of higher prices. 

The US Oil Fund (USO) is up % from its February low of $22.86 to a close of  yesterday.

When investing in crude oil, one must keep mind the inherent risks and volatility involved.  A good way to mitigate both of these and protect a position is through the utilization of an exit strategy which indicates when an upward trend could be coming to an end.  According to the latest data at www.SmartStops.net, the price point for USO is $36.17.  Price points fluctuate with market volatility and updates data can be found at www.SmartStops.net.

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