United States Oil (USO) – OPEC and allies’ oil production cut is Trump’s ‘biggest and most complex’ deal ever

United States Oil (USO) – OPEC and allies’ oil production cut is Trump’s ‘biggest and most complex’ deal ever

As the Organization of the Petroleum Exporting Countries and its allies came to an agreement on a record cut in oil production, U.S. President Donald Trump may have struck his “biggest and most complex deal,” according to oil expert Dan Yergin.

“What was so interesting — among many, very interesting things in this unprecedented event — was the turnaround, the pivot by Donald Trump,” Yergin, who is vice chairman at IHS Markit.

Just a few weeks ago, Trump had said the early-March plunge in oil prices were “good for the consumer” as it meant lower gasoline prices. That drop in crude prices had been triggered by an oil price war between Saudi Arabia and Russia after Moscow rejected a proposal by OPEC to cut 1.5 million barrels of production per day.

The sharp decline in oil prices spurred giant capex and job cuts across the U.S. shale industry, which has some of the highest production costs in the world.

But Yergin said: “(Trump) came to see this as a national security issue, also an employment issue, and a very important factor in the U.S. economy … and he just jumped in.”

“This must be the biggest and most complex deal (Trump)’s ever made,” Yergin said. “Not only was he a deal maker, but he was also something of a divorce mediator.”

Yergin said there were two main factors driving the turnaround to the deal that just six weeks ago “would not have seemed possible.”

Firstly, he said, the price of oil was in danger of crashing without a deal as there was limited inventory space left. That would have had “severe repercussions” beyond the oil industry itself and other sectors such as finance.

The other driving factor was likely due to a dearth in oil demand, where the “producers found they couldn’t sell their oil.” Crude demand has taken a hit in recent weeks as measures taken by authorities to stem the spread of the coronavirus pandemic have left major economies effectively frozen.

“I think all those things came together but then it was this dealmaker … Donald Trump who got on the phones,” Yergin said. “I would say it looked like a mission impossible a few weeks ago. Turned out, it was mission possible.”

His comments came after OPEC+ finalized an agreement to cut production by 9.7 million barrels per day — the single largest output cut in history.

OPEC+ is hoping that nations outside of the group, including the U.S., Canada and Norway, will also cut back on production in an effort to shore up prices. For his part, Trump has noted that market forces would naturally curb output stateside, after previously stopping short of saying the U.S. would scale back production.

Deal has averted ‘disaster’

Commenting on the deal that has been struck by OPEC+, Yergin said it has “bought time” and avoided what is known as a “tank top” by the end of April to beginning of May.

He also said it addresses another problem of the build up in inventories that were so high that they would have left pressure on the market over the next few years.

“This agreement goes two years, so it’s also meant to manage the inventories downward over that period of time,” Yergin said. “What this has done is averted what really would have been a disaster for the oil industry and I think it does give some stabilization.”

Still, he acknowledged that the whole problem was not addressed, though the deal “goes a long way” and the alternative was a “pretty steep drop.”

Technical Indicators

Overall, the bias in prices is: Downwards.

Note: this chart shows extraordinary price action to the downside.

The projected upper bound is: 6.32.

The projected lower bound is: 3.40.

The projected closing price is: 4.86.

Candlesticks

A big black candle occurred. This is bearish, as prices closed significantly lower than they opened. If the candle appears when prices are “high,” it may be the first sign of a top. If it occurs when prices are confronting an overhead resistance area (e.g., a moving average, trendline, or price resistance level), the long black candle adds credibility to the resistance. Similarly, if the candle appears as prices break below a support area, the long black candle confirms the failure of the support area.
During the past 10 bars, there have been 5 white candles and 5 black candles. During the past 50 bars, there have been 21 white candles and 29 black candles for a net of 8 black candles.

An engulfing bearish line occurred (where a black candle’s real body completely contains the previous white candle’s real body). The engulfing bearish pattern is bearish during an uptrend. It then signifies that the momentum may be shifting from the bulls to the bears.

If the engulfing bearish pattern occurs during a downtrend (which appears to be the case with UNTD ST OIL FUND), it may be a last engulfing bottom which indicates a bullish reversal. The test to see if this is the case is if the next candle closes above the bottom the current (black) candle’s real body.

Momentum Indicators

Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.

Stochastic Oscillator

One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 43.4125. This is not an overbought or oversold reading. The last signal was a buy 6 period(s) ago.

Relative Strength Index (RSI)

The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 39.10. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a buy 5 period(s) ago.

Commodity Channel Index (CCI)

The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is 49. This is not a topping or bottoming area. The last signal was a sell 2 period(s) ago.

MACD

The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a buy 8 period(s) ago.

Rex Takasugi – TD Profile

UNTD ST OIL FUND closed down -0.390 at 4.980. Volume was 99% below average (consolidating) and Bollinger Bands were 6% narrower than normal.

Open     High      Low     Close     Volume___
5.400 5.780 4.800 4.980 767,133
Technical Outlook 
Short Term: Neutral
Intermediate Term: Bearish
Long Term: Bearish
Moving Averages: 10-period     50-period     200-period
Close: 4.92 8.03 10.91
Volatility: 165 142 80
Volume: 159,863,616 79,745,160 38,636,008

Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.

Summary

UNTD ST OIL FUND is currently 54.3% below its 200-period moving average and is in an downward trend. Volatility is high as compared to the average volatility over the last 10 periods. Our volume indicators reflect volume flowing into and out of USO at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bearish on USO and have had this outlook for the last 60 periods.

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