The Bias in Oil Prices Remains to the Upside (USO DWTI UWTI)

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The oil trade remains a dangerous game to play in light of the steady stream of contradictory data, but the outlook remains slightly more bullish than bearish.

oil usoOil prices rise nearly 5% Tuesday for their biggest one-day rally in three months on a forecast for tighter supplies, and then fell substantially the next session on stronger-than-expected production.

This is how it goes with oil. No one can predict the future, but the trend of crude oil is regarded to be the toughest to fix. The outlook is arguably cloudier these days than ever.

Major oil exchange-traded funds and ETNs such as United States Oil Fund LP (ETF) (NYSEARCA:USO), VelocityShares 3X Inverse Crude ETN (NYSEARCA:DWTI) and VelocityShares 3X Long Crude ETN (NYSEARCA:UWTI) rocked and rolled Wednesday on a production report.

Oil Prices: Easy Come, Easy Go

USO was down almost 5% by midday trading. Predictably, DWTI was up 12% at the same time, while UWTI gave back 12%. The culprit was the latest American Petroleum Institute report showing that U.S. crude supplies unexpectedly rose by 2.2 million barrels last week. Seems a bit excessive, no?

But the size of the move can be explained in part by Tuesday’s equally over-excited trading when OPEC forecast tighter supplies. So which is it?

USO looks to be consolidating a bit after its big move in April and May, which is natural and necessary for the next leg up — if there is one.

The messaged are clearly mixed but the price forecast looks more bullish than bearish. Supply data are backward looking, after all, and projections remain favorable in the medium term. The U.S. Energy Information Association predicts that prices will top $50 a barrel in 2017, which is less than six months away. That’s essentially in line with guesses by other major forecasters.

That, and other ever-so-slightly more positive data, makes it seems unlikely that USO, DWTI and UTWI would fall substantially below their May lows.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/07/oil-uso-dwti-uwti/.

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