Oil prices gapped lower over the last few weeks.
All as the number of coronavirus cases skyrocketed.
“Coronavirus represents a real threat to oil demand,” Patrick DeHaan, the head of petroleum analysis at GasBuddy, told ABC News. “We are already looking at a real downturn in demand. You’re looking at thousands of flights being cancelled in China,” he added. “Some of it is certainly rooted in speculation and worry over the continued spread.”
However, it appears a good deal of fear has now been priced in – as oil prices recover.
At the moment, oil is back up to $51.60 and rising for two reasons.
One, investors are eying deeper production cuts from OPEC.
“The market is keeping a close watch on the possible move by Russia and its oil companies to get on-board with the proposal to deepen the OPEC+ production cuts,” Again Capital’s John Kilduff told CNBC.“The companies seem to be willing to extend the time frame of the deal, but not deepen. Any cooperation is a positive, however.”
Two, oil prices are rising on news that the number of coronavirus cases are starting to fall.
FundStrat’s Tom Lee said that oil prices were being “boosted as worries ease over coronavirus disease’s hit to crude demand,” while Again Capital’s John Kilduff said, “the ebbing fears over the coronavirus outbreak are another positive” for oil.
While the number of coronavirus deaths unfortunately passed 1,000, the number of new confirmed cases has begun to flatten out, and fall. Better, according to China, the epidemic could be over by April 2020, as noted by Reuters.
Some of the best ways to trade a potential recovery is with energy ETFs, including:
SPDR Energy Select Sector ETF (XLE)
The Energy Select Sector SPDR Fund seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the Energy Select Sector Index. It also seeks to provide precise exposure to companies in the oil, gas and consumable fuel, energy equipment and services industries. It last traded at $54.74.
Inveseco DB Oil Fund (DBO)
This ETF seeks to track changes, whether positive or negative, in the level of the DBIQ Optimum Yield Crude Oil Index Excess Return plus the interest income from the Fund’s holdings of primarily US Treasury securities and money market income less the Fund’s expenses. It trades WTI crude futures, and trades at $9.
iShares Global Energy ETF (IXC)
The iShares Global Energy ETF seeks to track the investment results of an index composed of global equities in the energy sector. Trading at $28.55, some of its top holdings include Exxon Mobil, Chevron Corporation, BP PLC, Total SA, and EOG Resources.