Oil Setting Up For A Spill (USO, XES)

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May 8, 2009 9:34am NYSE:USO NYSE:XES

oil5The price of crude is beginning to look like it might be setting itself up for a spill in the short-term.

The United States Oil Fund ETF (NYSE:USO) has soared 39.1% since hitting a 52-week low in mid-February. This run is somewhat unexpected given lagging underlying demand. It is also opening up opportunities for investors.

Excessive Inventory
On May 7, the price of crude broke above $58 for the first time in 2009. I am a bit leery of this rally given the lack of a fundamental basis to support the climb. On May 6, the Energy Department reported that crude inventories reached their highest level in 18 years.

The move up in crude appears to be based more on the optimism that equities have been experiencing recently as well as lower-than-expected increases in crude stockpiles. Over the long run, I believe the price of crude will recover, but this current rally may be a bit premature.

Full Story: http://community.investopedia.com/news/IA/2009/Oil-Setting-Up-For-A-Spill-USO-XES-VLO-TSO-SUN-WNR0508.aspx



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