This article was originally published on ETFTrends.com.
Oil prices have tumbled more than 20 percent since the end of April due to fears of global demand as fears of slower growth worldwide are taking hold of the commodity. It didn't help that the U.S.-China trade deal that was supposed to happen went sideways, but oil traders and investors are still hoping that oil prices will still end up higher.
On Wednesday, crude oil futures closed at $51.68 a barrel--down 3.4 percent for the day while the major U.S. indexes were higher on hopes of a possible Federal Reserve rate cut. Oil ETFs like the United States Oil Fund (USO) fell over 3 percent.
"Oil dropped off today and WTI fell below $52/barrel for the first time since February after US crude inventories surprisingly surged last week - USO fell a whopping 3.5%," said firm WallachBeth Capital, a leading provider of institutional execution services, in an email. "Supply glut concerns were stoked yesterday after Russia’s largest oil company said Russia should not follow OPEC cuts and should pump oil at will."
Is this just temporary weakness and a buy-the-dip opportunity for traders? Bullish betters can consider the United States 3x Oil (USOU) , ProShares UltraPro 3x Crude Oil ETF (OILU) and the Direxion Daily S&P Oil & Gas Exp. & Prod. Bull 3X Shares (GUSH) .
Supply cuts by the Organization of Petroleum Exporting Countries (OPEC) have pushed oil prices down, but downward forces from trade wars have also kept them in check. Oil prices rocketed higher last month following U.S. President Donald Trump ending waivers on companies wishing to purchase Iranian oil without facing stiff sanctions. The companies affected most by these waivers were China, Greece, India, Italy, Japan, South Korea, Taiwan and Turkey.
Oil, however, faces a number of possible headwinds, but thus far, it's been ignoring these risks.
"Oil & Gas bears may point to concerns stemming from the potential for a global recession, as Europe grapples with a slowdown and continues to deal with the uncertainties of Brexit," a Direxion post noted. "During the Global Financial Crisis, the oil demand fell of the table in a relatively short period. Don’t forget that trade negotiations between the US and China still loom. If discussions break down, oil demand could drop not just because of less physical trade, but also because of possible broader negative impact on the global economy. Also, because oil is priced in US dollars, if the greenback continues to rise, it could put negative pressure on prices."
Furthermore, Global investment bank RBC Capital Markets is expecting more increases in oil prices, going as far as saying that crude could reach the $80 price level this summer. Overall, RBC Capital Markets is forecasting Brent crude prices to average $75 for 2019–up from a previous 2019 forecast of $69.50 per barrel.
Furthermore, their outlook for U.S. West Texas Intermediate crude rose from $61.30 per barrel to $67 for 2019.
“We see price risk asymmetrically skewed to the upside spurred by geopolitically infused rallies that could shoot prices toward or even beyond our high-end, bull-case scenario and test the $80/bbl mark for intermittent periods this summer,” RBC strategists Michael Tran, Helima Croft and Christopher Louney said in a research note.
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