Oil prices managed to eke out a gain during Tuesday’s trading session, but more volatility could be ahead as oversupply concerns could continue to plague the commodity. Traders will be eyeing Wednesday’s inventory numbers very closely.
Per a Wall Street Journal report, “U.S. crude futures for delivery in July rose 2% to $38.94 a barrel on the New York Mercantile Exchange, paring some of this week’s decline after a 3.4% drop Monday. That decline paused a weekslong recovery that had powered oil to its highest level since early March.”
“Front-month futures started the year above $60 then briefly tumbled below $0 in late April due to a supply glut,” the report added.
As coronavirus lockdown measures ease, oil has been steadily gaining on this optimism of global economies reopening. In addition, the Organization of the Petroleum Exporting Countries (OPEC) and Russia have agreed to cut back supply, but it all remains an uncertainty.
“The inventory overhang remains significant and uncertainty remains high for the forward supply and demand outlooks,” Goldman Sachs analysts said in a recent note.
For broad exposure to oil, investors can go with the iShares U.S. Oil & Gas Exploration & Production ETF (IEO ). The fund seeks to track the investment results of the Dow Jones U.S. Select Oil Exploration & Production Index composed of U.S. equities in the oil and gas exploration and production sector.
IEO generally invests at least 90% of its assets in securities of the underlying index and in depositary receipts representing securities of the underlying index. The underlying index measures the performance of the oil exploration and production sector of the U.S. equity market.
Short-term traders betting on more price increases can look to ETFs like the United States 3x Oil {etf % USOU %}, ProShares UltraPro 3x Crude Oil ETF (OILU ) and the Direxion Daily S&P Oil & Gas Exp. & Prod. Bull 2X Shares (GUSH ). Another interesting option is the ProShares K-1 Free Crude Oil Strategy ETF (OILK ).
OILK seeks to provide total return through actively managed exposure to the West Texas Intermediate crude oil futures markets. The fund’s strategy seeks to outperform certain index-based strategies by actively managing the rolling of WTI crude oil futures contracts.
The fund generally will not invest directly in WTI crude oil futures. The advisor expects to gain exposure to these investments by investing a portion of its assets in the ProShares Cayman Crude Oil Strategy Portfolio, a wholly-owned subsidiary of the fund organized under the laws of the Cayman Islands.
