Bet on the energy sector with leveraged ETFs

ÖThe il price has gained momentum recently as futures posted gains for the second straight week. US crude oil hit its highest level since October 2018, while Brent hit its highest level since September 2019. A rapid global economic rebound and economies reopening coupled with optimism about the US summer season are fueling energy demand (read: Brent Tops $ 70 Again: ETFs Set To Win And Losing).

With the start of the summer travel season, the world’s largest oil-consuming country is in the midst of a pickup in demand, and other countries are also showing strength. US gasoline demand was highest since the pandemic began, while UK road traffic was higher than pre-pandemic levels for the first time, according to Descartes Labs. According to Daniel Yergin, vice chairman of IHS Markit, oil demand will grow rapidly by 7 million barrels a day between the first quarter and the third quarter.

The Organization of Petroleum Exporting Countries (OPEC) and its allies agreed at their most recent meeting to continue to gradually relax production cuts. The cartel will increase production in July, following the group’s decision in April to bring 2.1 million barrels per day to market between May and July. They believe the recovery in global demand will absorb the extra supply despite the prospect of more production from Iran if a nuclear deal is revived and concerns about stricter COVID-19-related restrictions in parts of Asia, particularly India .

The return of Iranian barrels does not appear to be an immediate problem for the oil market as talks between the United States and Iran over Tehran’s nuclear program have slowed, lowering expectations for a return of Iranian oil supplies to the market this year. The decline in inventories comes to the fore. US crude oil inventories declined 5.1 million barrels for the week ended May 28, compared to an expected decline of 2.4 million barrels.

Gasoline inventories are at their lowest level in nearly three decades, while crude oil inventories in Cushing, the WTI delivery center, have fallen around 17% below the five-year average. OPEC expects inventories to decline by at least 2 million barrels per day from September to December.

Bullish demand and tighter supply have pushed the price of oil higher. OPEC predicts that demand could reach 99.8 million barrels per day by the end of the year, but supply is only expected to reach 97.5 million barrels per day (read: ETFs to Gain as Oil Rallyes on Upbeat Demand Outlook).

How to play?

Amid the strong optimism, many investors have become optimistic about the energy sector and are trying to take this opportunity. For them, leveraging energy might be an excellent idea as it could generate huge profits in a very short period of time compared to simple products.

Below we’ve highlighted the leveraged ETFs that could be excellent choices:

ProShares Ultra Oil & Gas ETF DIG

This ETF aims to deliver twice (2X or 200%) the daily performance of the Dow Jones US Oil & Gas Index. It managed to manage $ 235.5 million in assets and trades on average a good volume of around 108,000 shares per day. DIG charges 95 basis points per year and is up about 13.6% over the past week.

Direxion Daily Energy Bull 2X stocks ERX

This fund builds a double leveraged position in the Energy Select Sector Index while charging fees of 95 basis points per year. With $ 707.9 million in assets under management and an average trading volume of around 3.9 million shares, it’s a popular and liquid option in the energy-leveraged stocks space. The ERX is up 13.8% in one week (read: 5 energy ETFs at the top of the oil rally with more uptrend).

Direxion Daily S&P Oil & Gas Exploration & Production Bull 2X-Stock GUSH

This fund offers double exposure to the daily performance of the S&P Oil & Gas Exploration & Production Select Industry Index. It has amassed $ 936.1 million in its asset base and the average daily volume is around 1.8 million shares. The ETF charges 95 basis points in annual fees and is up 16.7% over the past week.

MicroSectors US Big Oil Index 3X Leveraged ETN NRGU

This ETN offers triple leveraged exposure to the Solactive MicroSectors US Big Oil Index, which is weighted equal to dollars and provides exposure to the 10 largest US energy and oil companies. It was able to manage $ 643.8 million in its asset base while trading an average daily volume of 230,000 shares. The expense ratio is 0.95%. Fund gas gained 22.3% last week.

Bottom line

As a caveat, investors should note that these products are extremely volatile and are only suitable for short-term traders. In addition, daily rebalancing – in combination with leverage – can lead to these products deviating significantly from the expected long-term performance figures (see: all leveraged equity ETFs here).

However, for ETF investors who are optimistic about the energy sector in the short term, any of the above products may be an interesting choice. Obviously, a short-term long might be of interest to those with a high risk tolerance and a belief that the trend is the friend in this corner of the investment world.

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Direxion Daily S&P Oil & Gas Exp. & Prod. Bull 2X Stock (GUSH): ETF research reports

ProShares Ultra Oil & Gas (DIG): ETF Research Reports

Direxion Daily Energy Bull 2X Stock (ERX): ETF Research Reports

MicroSectors US Big Oil Index 3X Leveraged ETN (NRGU): ETF Research Reports

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The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.

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