Analysts, economists and industry experts have been calling for a bottom in oil prices for nearly two years now. With WTI recently surging above its previous peak in late January, traders with long positions in the United States Oil Fund ETF (USO) and other are wondering if crude oil has finally actually bottomed.
WTI crude prices dipped as low as $26.05/bbl earlier in mid-February, prompting yet another round of bottom calls from analysts such as Tethys Partners analyst Bob Iaccino.
But how can USO investors feel confident in the latest oil price bottom call when each of the many calls in recent years has ended up wrong? How can you tell when oil prices have bottomed?
Here’s a look at what USO bulls should be watching to know for sure when the market has finally bottomed for good.
Speculating On USO
Unfortunately, calling an exact bottom in oil prices (and USO) in real-time, much like calling an exact bottom in the stock market or filling out a perfect March Madness bracket, is mostly luck. Sure, inevitably some people will time each market bottom perfectly, but they only look like geniuses when their guesses turn out to be right.
There’s nothing wrong with speculating on the bottom in oil prices, but there’s a long (and growing) list of USO speculators that have been wrong for nearly two years now.
Instead of watching oil prices, which are heavily influenced by market sentiment, volatility and the aforementioned speculative guessing, long-term oil investors should be watching the oil market fundamentals themselves for confirmation that the market has bottomed. Unfortunately, by the time the fundamentals confirm the nadir, oil prices will likely have already bounced off of it. But at least USO traders will know for sure that the bottom is in.
Oil Prices: Supply and Demand 101
Speculation in the oil market adds…
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