How To Play Oil Rally With Leveraged ETFs

Oil price has shown a strong rebound this year and recovered about half of the losses made in the final quarter of 2018 despite global growth concerns and rising U.S. shale oil.

The real optimism came from OPEC-led fresh crude output cuts, where major oil producers have agreed to curb production by 1.2 million barrels per day during the first six months of 2019 in order to tackle global supply glut and rebalance the oil market. The 14-member OPEC cartel has agreed to reduce its output by 800,000 barrels per day, while Russia and the allied producers will take off 400,000 barrels per day from the market.

Additionally, U.S. sanctions against Venezuela led to strong optimism in the space as it will sharply limit oil transactions between Venezuela and other countries, threatening to disrupt global trade flows. Further, falling OPEC production and the Fed’s dovish outlook, which pushed the U.S. dollar down, led to a spike in oil price. Notably, weak dollar made dollar-denominated assets cheap for foreign investors, potentially raising demand for commodities.

Per Reuters’ survey, oil supply from the Organization of the Petroleum Exporting Countries fell in January by the largest amount in two years. The OPEC has pumped in 30.98 million barrels per day (bpd) last month, down 890,000 bpd from December and the largest month-on-month drop since January 2017. Hopes over the trade deal between the United States and China have lifted investor sentiments.

The solid run-up in price has made January the best month ever for the U.S. crude oil and the best month since April 2016 for Brent. Light oil has climbed 18.5% while Brent has gained 15.9% so far this year.

The combination of all these factors has increased the appeal for oil at least for the near term, fueling a rally in the energy space.

How to Play?

Amid renewed optimism, many investors have turned bullish on oil and are seeking to tap this opportunity. For them, a leveraged play on the commodity could be an excellent idea as these could see huge gains in a very short time frame when compared to the simple products.

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Disclosure: contains statements and statistics that have been obtained from sources believed to be reliable but are not guaranteed as to accuracy or completeness. References to any specific ...

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