WTI Crude prices surged over $115 again on Friday after briefly spiking up to $116.51 on Thursday. The rising prices have been exacerbated by Russia’s invasion of Ukraine and the fear the U.S. may ban Russian oil from its shores, although the price of crude has been rising steadily since Dec. 2, when it hit a bottom at the $62.56 mark.
United States Oil ETF (NYSE:USO) reversed into an uptrend on that same date and as of this Friday afternoon, had soared up more than 68% higher from its Dec. 2 low of $46.16 to reach a high-of-day at $79.46.
What Happened: Higher crude prices have flowed over to the pumps with the U.S. national average currently sitting at $3.781 per gallon. On Thursday, San Fransisco reached a record all-time high gas price of $5 per gallon, according to Gas Buddy. In Vancouver, prices at the pump reached a record $2 per liter, which equates to about $5.96 per gallon, according to Gas Buddy analyst Patrick De Haan.
Although the U.S. only imports about 3% of its oil from Russia, the longer the conflict in Ukraine rages on the more volatile oil prices are likely to be.
As the world begins to travel again for both work and leisure, demand for gasoline has been steadily increasing as the COVID-19 pandemic comes to an end. With spring and summer approaching an increase in vacation travel is likely and will further increase demand.
Interesting Fact: As part of the Reformulated Gasoline Program introduced in 1995, fuel producers are required to switch to a summer-grade fuel blend that is less harmful to the environment. The switch requires refineries to reconfigure their plants and use a different variety of additives to produce the fuel, which is costly and tacks on between about 5 cents and 15 cents to the price of each gallon.
The increase in crude prices on Friday caused the United States Oil Fund to blast through a resistance level at $78.08. Although it appears the ETF could continue to soar in the longer term and continue to pressure consumers at the pump, the sector is showing signs of extension. A retracement is likely and could provide an opportunity for traders who are not already in a position.
See Also: Gas Prices: Why Russia's Invasion Of Ukraine Will Increase Your Costs At The Pump
The United States Oil Fund Chart: The USO ETF has been trading in a strong uptrend, making a consistent series of higher highs and higher lows. The most recent higher low was printed at the $64.40 level on Feb. 25 and since March 1, the ETF has formed a higher high each trading day without forming another higher low.
- The higher low will eventually come because as the saying goes, “Nothing goes straight up.” When the higher low takes place, it could present an opportunity for a bullish entry.
- Traders can watch for the higher low to come when the USO eventually backtests the eight-day exponential moving average (EMA) as support. The eight-day EMA has been guiding the ETF higher but the share price has become detached from it, which indicates a period of consolidation is likely.
- The USO’s relative strength index (RSI) has also become severely extended and on Friday the RSI was measuring in at about 84%. When a stock or ETF RSI reaches or exceeds the 70% level it becomes overbought, which can be a sell signal for technical traders and also indicates a retracement is likely.
- There is a gap on the USO chart between $68.26 and $70.10 and because gaps fill about 90% of the time, it is likely the ETF will retrace to that level. There is a chance the USO will fall to fill the gap when it prints its next higher low, which could also provide a solid entry point.
- The USO has resistance above at $83.11 and $87.04 and support below at $78.08 and $73.84.
Photo: 15299 from Pixabay
