USO Update

This is one of the "Stay Nimble" trades. While the IEA has agreed to release strategic petroleum reserves to help bring down the price of oil (The US will account for half of the 60 billion barrel release) after a failed OPEC meeting two weeks ago in which Saudi Arabia unilaterally decided to abandon the Cartel's decision and promise to ramp up production. The IEA release is meant as a stop gap measure until the Saudis can get more oil in to the market. However, as usual, there are lingering doubts as to whether the Saudis have the excess oil (they commonly overstate their reserves) or the means to bring it online. Lets not forget the Saudi pledge to make up for the Libyan shortfall, which never happened.

The obvious move by the remaining OPEC countries that are opposed to an increase in production, they can easily counter both the IEA strategic release and any Saudi increase by simply lowering their output. The move by Washington and its allies seems as if it was not thought out, even with basic common sense. Those strategic reserves will have to be replaced and it might come at a much higher cost.

Here's the USO charts currently.

 USO gapped down today probably because of the IEA release, the 15 min chart however suggest that there is room for upside in Crude.

As for this morning's attempt to fill the gap, there is a negative divergence and I would be careful with any short term trades here, perhaps use an intraday trailing stop. As of now the gap is filled, so now is the time to consider a trailing stop. I'll update any developments as they occur.