Oil prices slid to a one-month low last week as the markets continued to absorb last Wednesday’s announcement by the Federal Reserve to keep rates unchanged.
On Wednesday, while the central bank elected to keep interest rates static, the markets dipped into the red with the Dow Jones Industrial Average falling over 160 points. With a U.S.-China trade deal already priced into the markets, investors were looking for another trigger event–a rate cut–except the Federal Reserve passed on that notion and stayed put.
“In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes,” the Federal Open Market Committee’s policy statement read.
Related: ETFdb Oil ETF List
Fed Chairman Jerome Powell reiterated his ongoing message of patience as the wait-and-see approach by the central bank continues to persist.
“The market was pricing in nothing but rate cuts,” said Gennadiy Goldberg, United States rates strategist at TD Securities. “I think he was trying to push back against the idea that the economy is turning lower and the Fed can never generate inflation.”
Meanwhile, traders saw the opportunity as a perfect exit point for oil positions.
“The willingness of speculators to lock their profits in enters the picture, and that’s why you get a correction,” said Gene McGillian, vice president of research at Tradition Energy. “We were getting ahead of ourselves, and you have to keep in mind that U.S. production levels keep rising.”
Furthermore,first-quarter earnings have been a slippery slope for big oil companies thus far as geopolitical challenges and receding prices may be putting the clamps on profitability for the rest of 2019.
Venezuela sanctions as well as production cuts in Canada have affected the profit margins for companies, such as industry giants Exxon and Chevron. Exxon said earnings showed a loss of $256 million in the first quarter and net income dropped to $2.35 billion, which represents its lowest in the last three years.
Nonetheless, oil prices have surged thus far in 2019 as evidenced by the performance of oil-focused leveraged inverse ETFs. Traders who sense that oil prices have dipped enough to present a perfect buying opportunity, here are leveraged ETFs to take advantage of:
|Symbol||ETF Name||Total Assets ($MM)||YTD|
|(UWTI )||VelocityShares 3x Long Crude ETN||$51.71||-37.67%|
|(USOU)||United States 3x Oil Fund||$23.08||135.71%|
|(WTIU)||ProShares Daily 3x Long Crude ETN||$17.53||135.50%|
|(DWTI )||VelocityShares 3x Inverse Crude ETN||$3.54||-74.56%|
|(USOD)||United States 3x Short Oil Fund||$2.61||-65.20%|
|(WTID)||ProShares Daily 3x Inverse Crude ETN||$2.44||-64.77%|
For more leveraged market strategies, visit our Leveraged & Inverse ETF Channel.