Piece written by Alexa Smith, Trive Financial Market Analyst 

The United States Oil Fund (NYSEARCA: USO) is ascending, underscoring the continued scarcity in supply attributed to the production curtailments enacted by OPEC+ and the voluntary one-million-barrel-per-day reduction undertaken by Saudi Arabia, which is set to persist until the conclusion of the year. Notably, this scarcity transpires amid a backdrop of unwavering demand.  

Despite being spurred by depleting supply, the surge in demand has been propelled by the reinvigorated appetite for oil in China and heightened consumption in sectors such as jet fuel and petrochemical feedstocks. In its most recent monthly Oil Market Report, unveiled last week, the International Energy Agency underscored that the collaborative efforts of OPEC+ and its member nations have effectively curtailed the projected supply for 2023 by an astonishing 2.5 million barrels per day. This substantial reduction has consequently prompted a pronounced supply deficit, compelling the depletion of inventories. In tandem, it has spurred an escalation in prices and contributed to the mounting inflationary pressures in the global oil market. 

Technical 

Supply constraints have propelled the United States Oil Fund into a firm uptrend, with the $60.18 support marking a pivot point for an uptrend. Since the 50-day moving average is diverging further from the 100-day moving average, the ETF may attempt to retest the $85.82 resistance and mark a 15-month high.  

However, dwindling supply could begin to weigh heavily on oil prices as the ETF has been plagued by overbought levels. Increased selling volume could also influence a downtrend if the $81.77 resistance holds and bolsters the price action lower. In this case, the $76.68 support at the 23.60% Fibonacci level could mark a pivot point for a downtrend.  

Summary 

The United States Oil Fund is trending higher due to dwindling supply and a boost in demand. If the supply constraints continue to have the desired effect, the ETF may be encouraged to retest the $85.82 resistance if a breakdown of the $81.77 resistance occurs. However, overbought levels could weigh the price action down towards the $76.68 support.  

Sources: TradingView, IEA