With Oil Prices Plummeting, Here’s How to Trade it

Jul 05, 2022
3d rendering of red financial arrows broke concrete floor

Just last week, we noted oil prices could fall even more.

In fact, we noted:

“According to AAA, the drop-in oil and gasoline futures prices stemmed from traders’ concerns about an overall drop in U.S. economic activity following the Federal Reserve Board’s three-quarters-of-a-percentage point increase in benchmark interest rates on June 15 — the most aggressive hike since 1994,” as noted by the That, coupled with demand destruction sent oil prices below $100.

We also noted investors may want to keep an eye on the ProShares UltraShort Oil and Gas ETF (DUG), which traded at $22.46 on June 30. Today, it’s up to $24.18. We also mentioned the ProShares UltraShort Bloomberg Crude Oil (SCO) at $22.08. Today, it’s up to $26.53.

Even now, both could race even higher as recession fears mount.

Moving forward, if things get worse, oil could dip to $65 by the end of the year, say Citi analysts. “In a recession scenario with rising unemployment, household and corporate bankruptcies, commodities would chase a falling cost curve as costs deflate and margins turn negative to drive supply curtailments,” the firm said, as quoted by CNBC.

Also, “In the very near term the Dow & S&P will have a major factor on crude direction as recession fears remain,” said Dennis Kissler, senior vice president of trading at BOK Financial, as quoted by Zero Hedge. “Fundamentally, there are concerns that fuel demand could “drop significantly now that the 4th of July holiday is behind us.”

It’s just something to consider if you’re looking for trades in this crazed market.