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Oil Price at 2023 High: Make Profits With Leveraged ETFs
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After lagging for most of this year, the energy sector has made a strong comeback on oil price surge. This is especially true as oil price surged to the highest level in almost nine months, with U.S. crude rising above $84 per barrel and Brent topping $87 per barrel (read: Oil Logs Best Month in July in Over a Year: ETF Winners).
Given this, investors could tap the bullish trend in the sector with the help of leveraged ETFs to make quick profits as these could see huge gains in a very short time frame when compared to simple products. These are ProShares Ultra Oil & Gas ETF (DIG - Free Report) , Direxion Daily Energy Bull 2X Shares (ERX - Free Report) , Direxion Daily S&P Oil & Gas Exploration & Production Bull 2X Shares (GUSH - Free Report) , MicroSectors U.S. Big Oil Index 3X Leveraged ETN (NRGU - Free Report) and MicroSectors Oil & Gas Exploration & Production 3X Leveraged ETN (OILU - Free Report) .
The surge was driven by a tightening oil market fueled by surging crude demand and supply reductions by major OPEC+ players — Saudi Arabia and Russia. Russia announced it would slash crude exports by 500,000 barrels per day in August, while Saudi Arabia is extending its supply curbs into the next month. This reduction in supply, coupled with record-high demand, has resulted in market deficits and a shift away from pessimism toward growth.
Additionally, a possible escalation of the conflict between Russia and Ukraine may disrupt more supplies in an already tightening market.
Analysts estimate that crude demand is running at a record clip as OPEC+ cuts back production. Demand is being boosted by solid second-quarter GDP data numbers, which showed that the economy grew 2.4% annually from 2% growth in the first quarter, thanks to resilience among consumers and businesses in the face of high interest rates. The data supported the Fed’s view that the economy can achieve a so-called “soft landing” (read: 5 ETFs to Ride On Solid Q2 Economic Growth).
A decline in inventories at the largest U.S. storage hub has led to a bullish pricing pattern known as backwardation (where later-dated contracts are cheaper than near-term contracts in the oil futures market) in WTI's nearest two contracts. This signals that the oil market is tightening and demand is robust, paving the way for an oil rally. This trend is acting as the biggest catalyst for the commodity.
Further, expectations that the Fed is nearing the end of its monetary tightening cycle have boosted market sentiment and contributed to the latest oil price rally. Moreover, speculators have been ramping up bullish bets on U.S. crude futures, pushing prices higher. However, sluggish economic growth in China might weigh on the demand for crude.
Below, we have highlighted the leveraged ETFs in detail:
ProShares Ultra Oil & Gas ETF seeks to deliver twice (2X or 200%) the daily performance of the Dow Jones U.S. Oil & Gas Index. The index measures the performance of the energy companies, including oil drilling equipment and services, coal, oil companies-major, oil companies-secondary, pipelines, liquid, solid or gaseous fossil fuel producers and service companies.
ProShares Ultra Oil & Gas ETF has been able to manage $129 million in its asset base and trades in a good volume of about 114,000 shares per day on average. DIG charges 95 bps in fees per year.
Direxion Daily Energy Bull 2X Shares (ERX - Free Report)
Direxion Daily Energy Bull 2X Shares creates two times leveraged position in the Energy Select Sector Index, while charging 92 bps in fees a year.
Direxion Daily Energy Bull 2X Shares is a popular and liquid option in the energy leveraged space with AUM of $416.2 million and an average trading volume of around 729,000 shares.
Direxion Daily S&P Oil & Gas Exploration & Production Bull 2X Shares (GUSH - Free Report)
Direxion Daily S&P Oil & Gas Exploration & Production Bull 2X Shares offers two times exposure to the daily performance of the S&P Oil & Gas Exploration & Production Select Industry Index.
Direxion Daily S&P Oil & Gas Exploration & Production Bull 2X Shares has accumulated $710 million in its asset base and the average daily volume is solid at around 300,000 shares. The ETF charges 93 bps in annual fees (read: Leveraged Oil & Energy ETFs to Play as Saudi Hikes Price).
MicroSectors U.S. Big Oil Index 3X Leveraged ETN (NRGU - Free Report)
MicroSectors U.S. Big Oil Index 3X Leveraged ETN provides three times (3X or 300%) leveraged exposure to the Solactive MicroSectors U.S. Big Oil Index, which is equal-dollar weighted and provides exposure to the 10 largest U.S. energy and oil companies.
MicroSectors U.S. Big Oil Index 3X Leveraged ETN has been able to manage $1.7 billion in its asset base while trading in an average daily volume of 75,000 shares. Its expense ratio is 0.95%.
MicroSectors Oil & Gas Exploration & Production 3X Leveraged ETN (OILU - Free Report)
MicroSectors Oil & Gas Exploration & Production 3X Leveraged ETN is linked to three times leveraged performance of the MicroSectors Oil & Gas Exploration & Production Index. The index provides exposure to the large-capitalization companies that are domiciled and listed in the United States and that are active in the exploration and production of oil and gas.
MicroSectors Oil & Gas Exploration & Production 3X Leveraged ETN has amassed $64.9 million in its asset base and trades in a lower average volume of 159,000 million shares. It charges investors 95 bps in annual fees and expenses.
Bottom Line
As a caveat, investors should note that these products are extremely volatile and suitable only for short-term traders. Additionally, the daily rebalancing — when combined with leverage — may make these products deviate significantly from the expected long-term performance figures (see: all the Leveraged Equity ETFs here).
Still, for ETF investors who are bullish on the energy sector for the near term, either of the above products can be an interesting choice. Clearly, a near-term long could be intriguing for those with high-risk tolerance and a belief that the trend is the friend in this corner of the investing world.
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Oil Price at 2023 High: Make Profits With Leveraged ETFs
After lagging for most of this year, the energy sector has made a strong comeback on oil price surge. This is especially true as oil price surged to the highest level in almost nine months, with U.S. crude rising above $84 per barrel and Brent topping $87 per barrel (read: Oil Logs Best Month in July in Over a Year: ETF Winners).
Given this, investors could tap the bullish trend in the sector with the help of leveraged ETFs to make quick profits as these could see huge gains in a very short time frame when compared to simple products. These are ProShares Ultra Oil & Gas ETF (DIG - Free Report) , Direxion Daily Energy Bull 2X Shares (ERX - Free Report) , Direxion Daily S&P Oil & Gas Exploration & Production Bull 2X Shares (GUSH - Free Report) , MicroSectors U.S. Big Oil Index 3X Leveraged ETN (NRGU - Free Report) and MicroSectors Oil & Gas Exploration & Production 3X Leveraged ETN (OILU - Free Report) .
The surge was driven by a tightening oil market fueled by surging crude demand and supply reductions by major OPEC+ players — Saudi Arabia and Russia. Russia announced it would slash crude exports by 500,000 barrels per day in August, while Saudi Arabia is extending its supply curbs into the next month. This reduction in supply, coupled with record-high demand, has resulted in market deficits and a shift away from pessimism toward growth.
Additionally, a possible escalation of the conflict between Russia and Ukraine may disrupt more supplies in an already tightening market.
Analysts estimate that crude demand is running at a record clip as OPEC+ cuts back production. Demand is being boosted by solid second-quarter GDP data numbers, which showed that the economy grew 2.4% annually from 2% growth in the first quarter, thanks to resilience among consumers and businesses in the face of high interest rates. The data supported the Fed’s view that the economy can achieve a so-called “soft landing” (read: 5 ETFs to Ride On Solid Q2 Economic Growth).
A decline in inventories at the largest U.S. storage hub has led to a bullish pricing pattern known as backwardation (where later-dated contracts are cheaper than near-term contracts in the oil futures market) in WTI's nearest two contracts. This signals that the oil market is tightening and demand is robust, paving the way for an oil rally. This trend is acting as the biggest catalyst for the commodity.
Further, expectations that the Fed is nearing the end of its monetary tightening cycle have boosted market sentiment and contributed to the latest oil price rally. Moreover, speculators have been ramping up bullish bets on U.S. crude futures, pushing prices higher. However, sluggish economic growth in China might weigh on the demand for crude.
Below, we have highlighted the leveraged ETFs in detail:
ProShares Ultra Oil & Gas ETF (DIG - Free Report)
ProShares Ultra Oil & Gas ETF seeks to deliver twice (2X or 200%) the daily performance of the Dow Jones U.S. Oil & Gas Index. The index measures the performance of the energy companies, including oil drilling equipment and services, coal, oil companies-major, oil companies-secondary, pipelines, liquid, solid or gaseous fossil fuel producers and service companies.
ProShares Ultra Oil & Gas ETF has been able to manage $129 million in its asset base and trades in a good volume of about 114,000 shares per day on average. DIG charges 95 bps in fees per year.
Direxion Daily Energy Bull 2X Shares (ERX - Free Report)
Direxion Daily Energy Bull 2X Shares creates two times leveraged position in the Energy Select Sector Index, while charging 92 bps in fees a year.
Direxion Daily Energy Bull 2X Shares is a popular and liquid option in the energy leveraged space with AUM of $416.2 million and an average trading volume of around 729,000 shares.
Direxion Daily S&P Oil & Gas Exploration & Production Bull 2X Shares (GUSH - Free Report)
Direxion Daily S&P Oil & Gas Exploration & Production Bull 2X Shares offers two times exposure to the daily performance of the S&P Oil & Gas Exploration & Production Select Industry Index.
Direxion Daily S&P Oil & Gas Exploration & Production Bull 2X Shares has accumulated $710 million in its asset base and the average daily volume is solid at around 300,000 shares. The ETF charges 93 bps in annual fees (read: Leveraged Oil & Energy ETFs to Play as Saudi Hikes Price).
MicroSectors U.S. Big Oil Index 3X Leveraged ETN (NRGU - Free Report)
MicroSectors U.S. Big Oil Index 3X Leveraged ETN provides three times (3X or 300%) leveraged exposure to the Solactive MicroSectors U.S. Big Oil Index, which is equal-dollar weighted and provides exposure to the 10 largest U.S. energy and oil companies.
MicroSectors U.S. Big Oil Index 3X Leveraged ETN has been able to manage $1.7 billion in its asset base while trading in an average daily volume of 75,000 shares. Its expense ratio is 0.95%.
MicroSectors Oil & Gas Exploration & Production 3X Leveraged ETN (OILU - Free Report)
MicroSectors Oil & Gas Exploration & Production 3X Leveraged ETN is linked to three times leveraged performance of the MicroSectors Oil & Gas Exploration & Production Index. The index provides exposure to the large-capitalization companies that are domiciled and listed in the United States and that are active in the exploration and production of oil and gas.
MicroSectors Oil & Gas Exploration & Production 3X Leveraged ETN has amassed $64.9 million in its asset base and trades in a lower average volume of 159,000 million shares. It charges investors 95 bps in annual fees and expenses.
Bottom Line
As a caveat, investors should note that these products are extremely volatile and suitable only for short-term traders. Additionally, the daily rebalancing — when combined with leverage — may make these products deviate significantly from the expected long-term performance figures (see: all the Leveraged Equity ETFs here).
Still, for ETF investors who are bullish on the energy sector for the near term, either of the above products can be an interesting choice. Clearly, a near-term long could be intriguing for those with high-risk tolerance and a belief that the trend is the friend in this corner of the investing world.