Anticipation of Rate Cuts Could Lead Oil Prices Higher

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While the capital markets are expecting the U.S. Federal Reserve to maintain its hawkishness, they don’t think it will be for long. The anticipation of rate cuts should prop up prices for oil as demand increases.

Furthermore, economic data is supporting the notion that rate cuts could be on the way. The Fed could see incoming data and pivot from their tightening monetary policy. This could be to the benefit of bullish oil traders.

“With the manufacturing sector languishing and inflation showing encouraging signs of slowing, the widely-anticipated July Federal Reserve interest rate hike may be the last,” analysts at bank ING said in a note, according to a Reuters report.

Price action in crude is already suggesting that an uptrend could be in the works. Warmer climate conditions are also adding an additional catalyst for higher prices.

“Crude’s price action shows a bullish market outlook on crude oil stockpiles and inventories numbers … traders are keen to observe the impact of the hot temperatures felt in recent weeks on crude supply,” analysts at energy consulting firm Gelber and Associates said in a note.

Offshore Drilling Growth

If oil prices do rise on increased demand, this could have a spillover effect into oil and gas exploration funds. As such, traders may want to play off the bullishness with the Direxion Daily S&P Oil & Gas Exp. & Prod. Bull 2X Shares (GUSH).

GUSH seeks daily investment results of 200% of the daily performance of the S&P Oil & Gas Exploration & Production Select Industry Index. Investment in offshore drilling is already on the rise, which could help spur GUSH higher.

“Oil and gas majors, who rely on the service providers for drilling and formation evaluation, well construction and completion services, are reinvesting record profits generated after Russia’s invasion of Ukraine disrupted the oil market to intensify the hunt for new offshore and international sources,” a Reuters report noted. “The global offshore drilling sector is set for the highest growth in a decade in the next two years, Oslo-based consultancy Rystad Energy said in a March report.”

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Article by Ben Hernandez, ETF Trends