XOP is Rising as Oil Supply Decreases

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This morning I am recommending a bullish trade on the SPDR S&P Oil & Gas Exploration & Production ETF (NYSEARCA:XOP).

Crude oil prices have been up the last three sessions, which is good for companies that produce crude oil. There are still concerns about increased production in the United States and Russia, as well as weakening economic growth. However, news from Saudi Arabia boosted oil prices on Wednesday.

Tightening Supplies

Saudi Arabia made promises to cut output after crude oil prices fell in the fourth quarter. According to data from Bloomberg, Saudi Arabia’s oil exports fell by half a million barrels per day (bpd) in December.

The Organization of the Petroleum Exporting Countries (OPEC) also agreed to cut oil production by 1.2 million bpd, which may help relieve some concern about demand. 10 other nations, including Russia, are part of that agreement

There is still concern about China’s decreased demand for oil, but tightening supply seems to have offset some of the negative effect on prices.

Rising in the New Year

If we look at the daily chart of XOP, we see the ETF is rebounding off a 52-week low of $23.89. XOP has a lot of support at this level going back to the lows it set in 2016, and I expect it to hold above this level in the intermediate term.

Daily Chart of SPDR S&P Oil & Gas Exploration & Production ETF (XOP) — Chart Source: TradingView

If XOP can hold support at or just under the $24 level, we can walk away from this trade with full profits.

The news is mixed for oil. But the boost from tightening supply only needs to last until early February for our naked put to expire out-of-the-money.

Sell to open the XOP Feb. 8th $23 put at about $0.29.

A naked put write is a bullish position in which you expect the price of the underlying stock to increase.

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