Piece Written By Nkosilathi Dube, Trive Financial Market Analyst 

The United States Oil Fund (USO) ETF (ISIN: US91232N2071) has emerged as a beacon of resilience amidst contrasting signals in the inflation landscape. August’s inflation data brought forth a dual narrative: a 3.7% uptick, surpassing projections by ten basis points, indicating the tenacity of high prices; yet, core inflation, excluding volatile food and energy prices, held at an anticipated 4.3%, a dip from the prior month’s 4.7%.  

This dynamic prompted the market to factor in a 97% likelihood of the Federal Reserve maintaining its 5.5% rate in the forthcoming meeting, providing a modest lift to risk assets. Notably, the USO, offering exposure to the pivotal global commodity of oil, has sustained its positive trajectory for three consecutive weeks.  

Bolstered by supply-side constraints from Saudi Arabia and Russia’s output cut extensions to the end of the year, it nears peaks last seen in June 2022, even in the face of a surprising 3.954 million crude oil inventory build this week. 

Technical 

The USO ETF exhibits a robust uptrend, propelled above the 100-day moving average and confined within an ascending channel pattern. A recent support at $70.43 marked a crucial turning point before the renewed surge in upward momentum.  

As it approaches a resistance at the June 2022 high of $86.40, caution is likely for bullish traders, given the diminishing upside volumes, proximity to the channel’s upper limit, and overbought RSI conditions.  

Should a reversal occur, the channel’s lower boundary may act as a formidable defence against downward pressure, while $70.43 could serve as a potential retreat point if supply surpasses demand. On the other hand, breaching the $86.40 level, aligned with the 61.80% Fibonacci Extension Golden Ratio, might signal sustained upward momentum, drawing interest from bullish traders.  

Summary 

The USO ETF stands resilient amid a nuanced economic landscape. With August’s inflation figures presenting a mixed picture, the market anticipates a steady Federal Reserve rate. The ETF’s commendable performance, bolstered by supply-side adjustments, nears peaks not seen since June 2022. Next week’s Fed Interest Rate Decision holds the key to determining the trajectory of the ETF.  

Sources: CME, Reuters, TradingView