The normal forces of supply and demand for oil won’t have as much of an effect on prices compared to movements in the dollar, according to one market expert. Oil prices have recovered since their untimely drop back in April, but could be buoyed further by a weaker greenback.
“As far as fundamentals are concerned, there is really not much to move oil around either way, which is why we have seen it pretty range-bound, but within that continuing to grind higher because of a weaker dollar,” said Vandana Hari, founder of Vanda Insights, an energy consultancy. “That’s been the only support, I would say.”
The CNBC report noted that during the month of March, “a futures contract for U.S. crude prices dropped more than 100% and turned negative for the first time in history as demand collapsed due to the coronavirus pandemic. There was a slight rebound in crude oil prices through May and June as economies reopened after lockdowns to contain the coronavirus.”
“These measures will keep risk-on trade, it will keep sentiment quite buoyant in larger global financial markets,” added Hari. “To some extent, I think it will support sentiment in oil, it will prop up oil.”
Leveraged ETF Trades in Oil
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).
For more market trends, visit ETF Trends.