The Xchange Blog

Will Oil & Gas Stay in the Sweet Spot?

In the oil exploration business, it can’t be too hot. But it can’t be too cold either. If prices are too low it’s tough to make a profit. But if prices are too high, demand will drop and eventually so will profits.

Some market watchers would say the market is in the sweet spot now. Prices approaching the mid $70s for light sweet crude are neither too low to hurt profits nor too high to hurt the economy and demand.

A little more than 12 months ago, oil and gas stocks were not at all interesting to traders. Oil prices were stuck below $50/barrel, which meant a lot of companies weren’t even breaking even on the oil they were producing.

Today the environment couldn’t be more different. American energy production is increasing as oil and gas prices have recovered and continue to rise. The oil & gas industry’s cost cutting during the oil price downturn is now paying off in the form of much higher margins and big profits. 

Since the early spring, the S&P Oil & Gas Exploration & Production Select Industry Index has climbed steadily, rewarding traders who’ve been along for the ride, handsomely. In fact, the Direxion Daily S&P Oil & Gas Exploration & Production Bull 3X Shares ETF has risen 88% to date (3/1-7/18).

GUSH and DRIP Performance

Data Range: 3/1/2018 – 7/18/2018. Source: Bloomberg. The performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate. An investor’s shares, when redeemed, may be worth more or less than their original cost; current performance may be lower or higher than the performance quoted. For standardized performance and the most recent month-end performance, click here.

The Energy Select Sector Index (IXETR) has also climbed steadily, with the Direxion Daily Energy Bull 3X Shares ETF rising 37.71% to-date (3/1-7/18).

ERX and ERY Performance

Data Range: 3/1/2018 – 7/18/2018. Source: Bloomberg. The performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate. An investor’s shares, when redeemed, may be worth more or less than their original cost; current performance may be lower or higher than the performance quoted. For standardized performance and the most recent month-end performance, click here.

 

Hurricane Season vs. President Trump

With hurricane season just around the corner, is it still a great time to buy into the oil & gas business or broader energy sector?  Or is a bear trade the better choice?  Of course, that may depend on what President Trump has to say – or tweet. The President has said that gasoline prices are too high. A short time ago, he asked Saudi Arabia to increase its oil output by two million barrels. Industry experts said there was no way the Saudis would raise output because that would lower prices along with profits. But now Saudi Arabia is offering extra oil to some of their Asian customers, presumably as a gesture to the U.S. leader. In addition, with some help from Russia, Trump may succeed at lowering prices.

What the future holds for energy stocks in the short term is anyone’s guess. In order to profit you have to trade boldly, and get the direction right.

 

Related Leveraged ETFs

 


Each leveraged ETF seeks investment results that are 300% of the return of its benchmark index for a single day. Each Fund should not be expected to provide returns which are the return of benchmark’s cumulative return for periods greater than a day. Investing in a Direxion Shares ETF may be more volatile than investing in broadly diversified funds. The use of leverage by a Fund increases the risk to the Fund. The Direxion Shares ETFs are not suitable for all investors and should be utilized only by sophisticated investors who understand leverage risk, consequences of seeking daily leveraged investment results and intend to actively monitor and manage their investment.
 
GUSH/DRIP Risks – An investment in each Fund involves risk, including the possible loss of principal. Each Fund is non-diversified and includes risks associated with the Funds’ concentrating their investments in a particular industry, sector, or geography which can increase volatility. The use of derivatives such as futures contracts and swaps are subject to market risks that may cause their price to fluctuate over time. Each Fund does not attempt to, and should not be expected to, provide returns which are three times the performance of their underlying index for periods other than a single day. Risks of each Fund include Effects of Compounding and Market Volatility Risk, Leverage Risk, Counterparty Risk, Intra-Day Investment Risk, risks specific to investment in the securities of the Energy Sector and the Oil and Gas Industry, for the Direxion Daily S&P Oil & Gas Exp. & Prod. Bull 3X Shares, Daily Index Correlation/Tracking Risk, and Other Investment Companies (including ETFs) Risk, and for the Direxion Daily S&P Oil & Gas Exp. & Prod. Bear 3X Shares, Daily Inverse Index Correlation/Tracking Risk and risks related to Shorting and Cash Transactions. Please see the summary and full prospectuses for a more complete description of these and other risks of each Fund.
 
ERX/ERY Risks – An investment in each Fund involves risk, including the possible loss of principal. Each Fund is non-diversified and includes risks associated with the Funds’ concentrating their investments in a particular industry, sector, or geographic region which can result in increased volatility. The use of derivatives such as futures contracts and swaps are subject to market risks that may cause their price to fluctuate over time. Each Fund does not attempt to, and should not be expected to, provide returns which are three times the performance of their underlying index for periods other than a single day. Risks of each Fund include Effects of Compounding and Market Volatility Risk, Leverage Risk, Counterparty Risk, Intra-Day Investment Risk, risks specific to investment in the securities of the Energy Sector, for the Direxion Daily Energy Bull 3X Shares, Daily Index Correlation/Tracking Risk and Other Investment Companies (including ETFs) Risk, and for the Direxion Daily Energy Bear 3X Shares, Daily Inverse Index Correlation/Tracking Risk and risks related to Shorting and Cash Transactions. Please see the summary and full prospectuses for a more complete description of these and other risks of each Fund.
 
S&P Oil & Gas Exploration & Production Select Industry Index (SPSIOPTR) – Provided by Standard & Poor’s Index Provider and includes domestic companies from the oil and gas exploration and production sub-industry. The Index is designed to measure the performance of a sub-industry or group of sub-industries determined based on the Global Industry Classification Standards (GICS). One cannot directly invest in an index.
 
Energy Select Sector Index (IXETR) – Provided by S&P Dow Jones Indices and includes domestic companies from the energy sector which includes the following industries: oil, gas and consumable fuels; and energy equipment and services. One cannot directly invest in an index.