The expectation of rate cuts is pushing oil prices higher as U.S. consumer prices fell during the month of June. This could give bullish oil and energy traders more momentum to bet on price increases when the Federal Reserve finally loosens monetary policy.
Per a Reuters report, Gary Cunningham, director of market research at Tradition Energy, noted that rate cuts should, in turn, push the dollar lower. This should help propel demand for dollar-denominated oil from international buyers using other forms of currency.
“Slowing inflation and interest rate cuts will likely spur more economic activity, Growmark Energy analysts said,” the Reuters report added. That corroborates with Cunningham’s prediction that prices can move higher on a weaker greenback.
The report also mentioned that higher prices are also stemming from tighter supply. That decline in inventories also comes amid higher demand, creating an additional catalyst for bullish oil traders.
“Front-month U.S. crude futures recorded their steepest premium to the next-month contract since April,” the Reuters report added. “Market participants’ willingness to pay premiums for earlier delivery dates, a structure known as backwardation, is typically a sign of supply tightness.”
2 ETFs to Ponder
Traders looking build off the upward momentum of increased oil prices can use the Direxion Daily S&P Oil & Gas Exp. & Prod. Bull 2X Shares (GUSH). The fund seeks daily investment results of 200% of the daily performance of the S&P Oil & Gas Exploration & Production Select Industry Index.
For a broader take on the energy sector, traders can opt for the Direxion Daily Energy Bull 3X Shares (ERX). The fund seeks daily investment results equal to 200% of the daily performance of the Energy Select Sector Index, which is provided by S&P Dow Jones Indices and includes domestic companies from the energy sector, which includes the following industries: oil, gas, consumable fuels, and energy equipment and services.
Of course, given the volatility of the sector, it’s an ideal move to remain flexible when trading energy. The International Energy Agency (IEA) is forecasting slower demand growth for oil, which could obviously apply downward pressure on prices.
“OPEC and the IEA demand forecast are wider apart than usual, partly due to the differences of opinion over the pace of the world’s transition to clear fuels,” wrote StoneX analyst Alex Hodes.
If prices turn the opposite direction, traders can always play downtrends with the Direxion Daily S&P Oil & Gas Exp. & Prod. Bear 2X Shares (DRIP) and the Direxion Daily Energy Bear 2X Shares (ERY).
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