Crude ETFs Rally As Investors Await Comments From Fed Chair

Crude oil and crude ETFs are gaining some momentum on Wednesday. They are coming off a recent range of lows as investors await comments from Federal Reserve Chair Jerome Powell, who is set to address Congress over the next two days.

Brent crude futures for August expiration are close to their highs, up $1.12, or 1.48%, to reach $77.02 per barrel. Meanwhile, U.S. benchmark West Texas Intermediate (WTI) crude futures for August rallied $1.29, or 1.81%, to approach 72.50 a barrel.

Investors are anxiously awaiting Chair Powell’s comments on the U.S. economy this week. This will provide indications about whether the nation will be capable of achieving a smooth landing after the recent rate hikes.

U.K. Inflation Challenges

Inflation has been a challenge over the past year. In the U.K., it continues to be problematic. May inflation is simmering at 8.7% compared to April and above predicted levels. A failure to further ease consumer price pressure could propel the Bank of England to increase the key U.K. interest rate again when it meets on Thursday.

“Countries are struggling to rein in inflation – the U.K. this morning a prime example of that – and that’s going to dampen growth and threaten recessions across the globe,” noted Craig Erlam, senior market analyst at OANDA today

“There are so many moving parts at this stage. However, at this point, there’s more negative than positive as far as the crude price is concerned,” Erlam added.

An increase in supply from Iran is also counteracting the Saudi efforts “to desperately manipulate prices higher with production cuts,” Erlam commented.

Lackluster China Outlook

Other analysts have observed that China’s anticipated economic stimulus has also been lackluster. The nation has further stymied oil prices and the prospects of oil demand, analysts say.

“China’s demand outlook is crucial for the global market. This comes given that the bulk of global demand growth this year is expected to be driven by China. Significantly weaker Chinese demand would mean that the global oil balance would not be as tight as currently expected over the second half of 2023,” ING strategists Warren Patterson and Ewa Manthey commented on Wednesday.

A Crude Several Months

Crude has been in a range over the past several months, providing opportunities for both buyers and sellers.

Softening inflation could be a boon for ETF traders who favor crude oil. Crude ETFs like the United States Oil Fund (USO)which is up 1.53% todayand the ProShares Ultra Bloomberg Crude Oil (UCO), could see potentially massive gains. Meanwhile, short ETFs like the ProShares UltraShort Bloomberg Crude Oil (SCO) could suffer continuing inflation and rising prices.

For investors looking for crude ETFs to play a rally in oil, the United States 12 Month Oil Fund (USL) and the iPath Pure Beta Crude Oil ETN (OIL) are two other funds to consider.

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