Geopolitics To Send Oil Prices Higher
Commodities investors have been looking for new signs of a bullish run for most of this year. Commodities assets in most of the commonly traded classes have been under pressure during this time -- largely coming as a result of dominant strength in the US Dollar. It should be remembered that assets like gold, silver, and oil are all priced in US Dollars so any time one of these asset classes goes up, the other tends to fall. So it is not entirely surprising that commodities have had such a difficult time rallying to this point in 2015. But the real question that will need to be asked here is whether or not these trends will be continuing.
Is that any reason to believe that oil prices will be heading higher in the coming weeks and months? When we look at the geopolitical scenario the answer to this question looks to be a relatively clear “yes.” Specifically, the latest round of tensions between Saudi Arabia and Yemen have led to a surge in oil price that could spell an end to the downtrend that has been in place for crude markets most of this year. The real issue at stake here is whether or not these military conflicts will prevent oil producers from transporting their products to some of the world’s largest oil consumers (ie. the US, China, and the Eurozone). If this is the case, the declines in supply will likely support oil markets in the weeks and months ahead.
Here, we will look at recent price activity in the United States Oil Fund LP ETF (USO, Financial). USO is the largest publicly traded ETF that tracks the price of oil, so it is a good idea to have an assessment of where the important price points are in order to determine the broader trend. Here, we look at the latest technical developments in crude oil assets.
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United States Oil Fund LP ETF (NYSE: USO)
Critical Resistance:21
Critical Support: 15.90
Trading Stance: Potential Rallies Ahead
(Chart Source: CornerTrader)
USO / Crude Oil Trading Strategy: Momentum is still negative but rallies are possible as long as support at 15.90 remain intact. Look to trade on the long side as rallies are becoming more likely.
"By all accounts the trend in USO has been downward," said Michael Carney, market analyst at TeachMeTrading, "but we are starting to see a slowdown in momentum that could signal the fact that the downtrend is coming to an end." And when we couple this with the fact that geopolitical tensions now appear to support the supply and demand outlook for bullish traders, there is now reason to believe that we will start to see higher prices in both oil and in USO in the weeks and months ahead.
Arguing against this thesis is the fact that the daily MACD reading is still in negative territory. But we are now pressing close to the positive levels in the indicator and if we start to see the indicator move further and reach upward territory we would then be likely to see traders that are short oil assets start to take profits on those positions. This could easily send prices back into levels not seen since the end of last year.
