Crude oil markets are tightly tied to economic growth where traders recognize that slowing growth from tariffs is expected to depress oil prices as demand drops, and that unexpected higher economic growth is expected to lead to higher crude oil prices with increased demand.
Crude oil traders are paying close attention to the impact of U.S. led tariffs on the economy as uncertainty around tariff implementation has led to increased price volatility and therefore enhanced trading opportunity. A heavy hand with tariffs is expected to slow the economy and decrease the flow of goods across borders while dramatically reducing consumer confidence and demand.
The escalation of counter tariffs has also caused volatility recently, as tit-for-tat announcements, followed by quick reversals and de-escalations, has caused quick swings in crude oil prices. Ontario’s threats on electricity supply and the U.S. threat of increased tariffs rattled markets and created short term price dislocations.
On top of new tariffs, continued sanctions on Russia and Iran will also impact supply and therefore crude oil prices. Having a view on continued sanctions also factors into crude oil traders price expectations.
As of March 17th, we are seeing reduced crude oil price forecasts from leading U.S. banks, increasingly targeting prices in the low $60s USD per barrel, while current prices are closer to $67 USD per barrel. While this could provide short term inflation relief, there would be significant impacts on future supply from producers.
Depending on your views on tariffs and the associated economic impact, there could be significant trading opportunities based on crude oil price movement.
If you hold leveraged and inverse ETFs for more than one day, your return could vary considerably from the ETF's daily target return. The negative effect of compounding on returns is more pronounced when combined with leverage and daily rebalancing in volatile markets.
Leveraged ETFs are a convenience tool for traders, providing a solution that doesn’t require direct margin from security holders. Trading on the exchange just like a stock means that traders have an easy-to-use solution.
At LongPoint, we saw the gap in the Canadian marketplace for competition in exposures with higher volatility than equity markets and launched the Savvy Geared ETFs that provide either two times long or two times inverse exposure to natural gas and crude oil futures.
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