Oil traders remember all too well when oil prices reached negative territory following the coronavirus sell-offs in March, which gave way to a serendipitous drop in oil prices to under $0 a month later. Are traders prepared for $0 prices again?
“Oil prices have rebounded sharply from their April 2020 lows,” a Forbes report noted. “WTI crude oil was trading close to $40 per barrel as of July 13th, driven by supply cuts by OPEC and Russia (together known as OPEC+).”
Oil prices weren’t helped by Covid-19 as social distancing and lockdown measures tamped down demand all over the globe. With more economies re-opening, the hope is that demand will eventually rise again and spur prices higher.
“In addition, of course, prices are helped in big part by a gradual recovery in demand, with Covid-19 lockdowns being eased,” the report added further. “That said, the memory of April’s negative prices driven by lack of storage capacity and insufficient oil demand is likely fresh in minds of oil speculators. If Covid-19 cases continue to climb and lockdowns are brought back, while traders and speculators will be more cautious and prices won’t likely drop to $0, we do see substantial risks over the near-term.”
Trading Opportunities in Oil ETFs
Short-term traders betting on even more price increases can look to ETFs like Direxion Daily S&P Oil & Gas Exp. & Prod. Bull 2X Shares (NYSEArca: GUSH). GUSH seeks daily investment results, of 200% of the daily performance of the S&P Oil & Gas Exploration & Production Select Industry Index.
The fund, under normal circumstances, invests at least 80% of its net assets (plus borrowing for investment purposes) in financial instruments and securities of the index, ETFs that track the index and other financial instruments that provide daily leveraged exposure to the index or ETFs that track the index. The index is designed to measure the performance of a sub-industry or group of sub-industries determined based on the Global Industry Classification Standards.
On the bearish side of the trade, there’s the Direxion Daily S&P Oil & Gas Exploration & Production Br 3X ETF (NYSEArca: DRIP). DRIP seeks daily investment results that equal 300% of the inverse of the daily performance of the S&P Oil & Gas Exploration & Production Select Industry Index, which is designed to measure the performance of a sub-industry or group of sub-industries determined based on the Global Industry Classification Standards (GICS).
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