United States Oil (USO) Worst Days Maybe Over
Oil prices rose on Friday as more countries began easing lockdowns set in place to stop the coronavirus spreading, giving hope that demand for fuels will pick up after the economic devastation caused by the pandemic.
Brent crude was up 47 cents, or 1.5%, at $29.33 a barrel by 0121 GMT, having fallen nearly 1% on Thursday.
U.S. oil gained 48 cents, or 1.5%, to $24.03 a barrel, after a decline of nearly 2% in the previous session.
Shayne Heffernan Trade Idea
“Oil prices are on the rise again, continuing their relentless rally and casting huge doubts over a repeat of the WTI May contract expiry fiasco. I mean, these are extraordinary times and facilities are still near capacity so I certainly wouldn’t write it off but production cuts and soft reopenings all over the place are having the desired effects. Inventory data has done little to deter, with EIA reporting an increase of only 4.6 million last week, continuing the downtrend. The market is gradually moving towards balance but its far from there yet and we shouldn’t count on demand too much.” Shayne Heffernan PhD in Economics
Why This Matters
Around 187,000 oil barrels per day were taken off the market in April, according to Rystad Energy, a Norwegian oil and gas research firm which tabulated production cuts from 19 producers nationally. Oil companies are shutting down rigs, particularly higher-cost wells, and lowering production in the face of a glut in cheap crude.
The production cuts have come from all corners of the upstream sector, including supermajors such as Chevron and ExxonMobil to West Texas shale drillers such as Diamondback Energy and Parsley Energy.
Chevron expects to cut its U.S. output by about 66,000 barrels per day and 80,000 barrels per day in June, which represents a reduction of about 35 percent and 42 percent of its shale oil production.
Rystad estimates that ExxonMobil will cut its U.S. output by about 74,000 barrels per day in May and June, mostly from shutting down rigs in the Permian Basin.
ConocoPhillips will cut 81,000 barrels per day in May, a 32 percent reduction in U.S. production. The company will cut 130,000 barrels per day in June, about a 52 percent reduction.
Concho Resources said it has already cut 10,500 barrels per day in April, and Rystad estimates the company will double its production cuts in May and June, representing at least 10 percent of its oil output.
Diamondback Energy reported a 10 percent to 15 percent production cut in May, and Rystad estimates at least 10 percent or 20,000 barrels per day may be cut in June.
Parsley Energy said it did not cut production in April but is planning to cut about 30,000 barrels per day in May.
Pioneer Natural Resources has cut about 7,000 barrels per day, or 3 percent of its production. The company said it has firm transportation agreements for most of its crude, therefore does not see the need to make further cuts at this time.
Technical Indicators
Overall, the bias in prices is: Downwards.
Note: this chart shows extraordinary price action to the downside.
By the way, prices are vulnerable to a correction towards 39.89.
The projected upper bound is: 31.10.
The projected lower bound is: 7.39.
The projected closing price is: 19.25.
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 3 white candles and 7 black candles for a net of 4 black candles. During the past 50 bars, there have been 18 white candles and 31 black candles for a net of 13 black candles.
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 77.4672. This is not an overbought or oversold reading. The last signal was a sell 0 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 32.31. 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 2 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 6. This is not a topping or bottoming area. The last signal was a buy 6 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 3 period(s) ago.
Rex Takasugi – TD Profile
UNTD ST OIL FUND closed down -0.380 at 20.470. Volume was 9% below average (neutral) and Bollinger Bands were 21% wider than normal.
Open High Low Close Volume 21.880 21.910 20.270 20.470 12,745,439
Technical Outlook Short Term: Neutral Intermediate Term: Bearish Long Term: Bearish
Moving Averages: 10-period 50-period 200-period Close: 19.36 40.91 80.45 Volatility: 128 173 95 Volume: 20,241,748 22,496,134 8,000,144
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 74.6% 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 very strong flows of volume out of USO (bearish). Our trend forecasting oscillators are currently bearish on USO and have had this outlook for the last 79 periods.
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