Rising energy prices have been the prevailing narrative for much of 2022, but they’re coming back down to earth as inflation fears dwindle and recession fears take their place. However, the Direxion Daily Energy Bull 2X Shares (ERX) has been rising again the past month, which means that energy could resume its upward trajectory.
Oil prices are a major catalyst for the energy sector, and a supply cut could prop up the sector even higher. That could come given the latest news surrounding the Organization of the Petroleum Exporting Countries (OPEC).
“Benchmark Brent oil climbed above $100 a barrel on Wednesday after Saudi Arabia suggested this week that OPEC could consider cutting output in response to poor liquidity in the crude futures market and fears about a global economic downturn,” a CNBC report noted. “Brent for October settlement reached a three-week high and was last up 92 cents at $101.14 per barrel. U.S. crude added 79 cents to trade at $94.53 a barrel.”
“The oil price and supply outlook suggest that an OPEC+ cut is not currently warranted,” said PVM analyst Stephen Brennock, outlining possible threats to supply underpinning the market.
“Global oil supply could take a hit as peak U.S. hurricane season approaches,” Brennock added. “Elsewhere, future supply outages in Libya cannot be discounted while Nigeria’s oil fortunes show little sign of improving.”
Meanwhile, the S&P 500 Energy Sector is still up close to almost 50% for the year (almost 10% within the past month), and should that strength continue, traders can err on the side of bullishness through the rest of 2022. For amplified moves with additional leverage, ERX is a worth consideration.
ERX seeks daily investment results equal to 200% of the daily performance of the Energy Select Sector Index. The index 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.
Oil at $150 Per Barrel?
OPEC cites high volatility and low liquidity as reasons a potential supply cut. According to certain analysts, that could push oil to $150 per barrel.
“The global supply picture is a mess. The Saudis themselves are telling you: there’s nothing left,” said energy analyst Paul Sankey in a Markets Insider report.
“I think what that was there was frustration from the Saudis,” Sankey added. “They feel that so much liquidity is out of the paper market, that the price you see on your screen does not reflect the physical market behind.”
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