Perma bears and perma bulls share one thing in common: they both can enjoy their Andy Warhol-inspired 15 minutes on the stage and believe at the end of their careers that they made a difference.
The fact that they have been wrong over 90 percent of the time is a trifling and irrelevant detail.
Forecasting is next to impossible. Still, here goes:
So far during 2017, WTI has been having a tough time breaking out of the $52-54 range on the upside, but has also broken down significantly below technical support on the downside before attempting to rally back to resistance. That rally appears to be over. A stronger U.S. dollar as a result of the U.S. Federal Reserve Board statement and (in)action on 3 May has resulted in a predictable bloodbath in the US$-denominated commodity space, in particular gold and crude oil. Is this a portent of things to come?
The fundamental macro-economic and sector-specific backdrop is pretty inexorably bearish, including a weak U.S. GDP print of under 1 percent, rising U.S. rates and a correspondingly rising U.S. dollar, increasing U.S. supply and increasing domestic rig counts, declining U.S. demand for gasoline, Libyan crude coming back on the global market, technical support at $47.50 clearly being broken, etc. It is also worth noting the total underperformance of North American energy equities so far this year, the proverbial canary in the coal mine.
The only hope on the horizon appears, of all things, to be OPEC. But do they still matter? The 25 May meeting in Vienna will be make or break. But even if OPEC decides to continue with production cuts, there are no guarantees that it will work. WTI dropped below $46 per barrel on Thursday 4 May, a level not seen since OPEC agreed to slash output by 1.2 million barrels/day in a bid to shrink huge stockpiles around the world in late 2016. “Plunging oil prices show OPEC has lost its grip on the market” read one of the headlines in the financial press on Thursday. In any case, compliance of 104 percent is unlikely going to prove to be sustainable. The technical damage alone is probably going to be sufficient to keep WTI price action in a consolidating to downward trend.
Anything can happen over the next few months, including a major relief rally, but the odds seem to indicate a move lower rather than higher, OPEC aside. My one dollar/one euro (name your currency) bet would be that oil (meaning WTI) goes back to the high $20s-low $30s as it did in the winter of 2016 before it goes back above $60. We’ll know soon enough.
The United States Oil Fund (NYSE:USO) closed at $9.66 on Friday, up $0.20 (+2.11%). Year-to-date, USO has declined -17.58%, versus a 7.23% rise in the benchmark S&P 500 index during the same period.
USO currently has an ETF Daily News SMART Grade of C (Neutral), and is ranked #38 of 127 ETFs in the Commodity ETFs category.