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ETFs to Ride the Oil Rally on Lower Supply & Dovish Fed

The latest rally in oil prices seems to be impressive as the commodity just hit 13-month high. The upside is backed by decreasing crude production in the United States and Fed’s continued dovish stance, per a Reuters article. Going by the same article, Brent crude futures for April recently rose 0.3% to $67.23, whereas U.S. West Texas Intermediate crude for April came in at $63.30 a barrel, up 0.1%. Notably, Brent also touched $67.44 and WTI reached $63.67, the highest since January 2020.

The Fed, in its commitment to drive economic recovery, has decided to keep interest rates at near-zero level. On Feb 23, in his semi-annual testimony on the economy before the Senate Banking Committee, the Fed Chairman restated the central bank’s stance to continue with easy monetary policies as inflation is far below the Fed’s target level and employment levels are yet to reach the pre-pandemic mark.

In this regard, ING analysts said that “comments from Fed Chairman, Jerome Powell, earlier in the week relating to the need for monetary policy to remain accommodative have probably helped, but sentiment in the oil market has also become more bullish, with expectations for a tightening oil balance,” per a Reuters article.

Notably, reducing oil supply, increased fiscal stimulus, rise in industrial production and a weak dollar as Fed has remained super dovish are working in support of oil prices. Moreover, extreme cold weather conditions across the United States have triggered a rally in the space. According to the Energy Information Administration, winter storm in Texas has resulted in reduced U.S. crude production by more than 10%, or 1 million barrels per day (bpd) in the previous week, as mentioned in a Reuters article.

Meanwhile, the U.S. government has ramped up nationwide deployment of COVID-19 vaccines. Moreover, new cases of coronavirus infections have dropped for around sixth consecutive week along with significantly declining hospitalization this month. In the current scenario, gradual reopening of the U.S. economy seems probable, after being operating at sub-optimal level since lockdowns last year.

Moreover, positive developments pertaining to discussions on providing an additional stimulus are raising hopes of a speedy U.S. economic rebound. According to Speaker Nancy Pelosi, the House of Representatives is planning to get the $1.9-trillion coronavirus stimulus plan approved before the end of February, per a CNBC article. Going by the same report, the Democratic Congressional leaders may attempt to get the package approved without taking votes from Republicans.
Source: Zacks

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