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Editor’s note: Any and all references to time frames longer than one trading day are for purposes of market context only, and not recommendations of any holding time frame. Daily rebalancing ETFs are not meant to be held unmonitored for long periods. If you don't have the resources, time or inclination to constantly monitor and manage your positions, leveraged and inverse ETFs are not for you.
Both hurricanes and the virus are factors influencing oil production in the United States. As the Delta variant of the COVID-19 virus threatens to dampen reopening efforts in the U.S., the 2021 Atlantic hurricane season is just picking up. These variables may impact both the demand and supply sides of the market. Consider the possible impact and increased volatility in the energy and oil sector.
How Hurricanes Affect Oil and Gas Prices - The Supply Side
The United States still leads the world in oil production, accounting for 20% of worldwide oil production in 2020 with about 15% coming from offshore oil rigs which are inherently vulnerable to hurricanes and tropical storms. As the 2021 hurricane season continues to ramp up, this poses an imminent threat to U.S. oil production capabilities.
The NOAA’s most recent update for the 2021 Atlantic hurricane season forecasts a 65% chance that we will have an “above normal” hurricane season. NOAA administrator Rick Spinrad, Ph.D., recently said, “After a record-setting start, the 2021 Atlantic hurricane season does not show any signs of relenting as it enters the peak months ahead.” This may mean U.S. oil production could see disruptions from August through November and possibly increased volatility.
Will The Delta Variant Impact Energy Prices? The Demand Side
On the demand side of the equation, efforts to get back to a fully reopened economy have stumbled a bit with concerns over the spread of the Covid Delta Variant. Politicians and health officials are currently debating lockdowns and vaccine mandates in response to an uptick in COVID-19 cases. If a wave of new lockdowns were to take effect, we could see major aftershocks in the price of oil. Since the U.S. is the No. 1 consumer worldwide, slowing demand may cause prices to drop and oil refiners to adjust accordingly.
With Energy and Oil Price Volatility Comes Opportunity
With factors impacting both demand and supply sides, it looks like U.S. oil producers may be in for a volatile few months. Savvy traders may see this volatility and look to take advantage of it in the short term.
Luckily, there are two Direxion Daily Leveraged Exchange-Traded Funds (ETFs) that could help traders do just that, with the added bonus of 2x daily leverage to help boost their short-term positions.
For those looking to make a bullish play, there is the Daily S&P Oil & Gas Exp. & Prod. Bull 2X Shares (NYSE: GUSH) and for those looking to profit from a bearish move in oil production the Daily S&P Oil & Gas Exp. & Prod. Bear 2X Shares (NYSE: DRIP) are ones to keep an eye on. Both are based on the S&P Oil & Gas Exploration & Production Select Industry Index which is simply a list of 54 oil producers who are based in the U.S. This gives the trader using them exposure to the country’s oil producers as a whole, making it an easier way to take advantage of sector volatility.
Source: Bloomberg Data: 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 and month-end click here.
- Magnify your short-term perspective with daily 2X and 3X leverage
- Go where there’s opportunity, with bull and bear funds for both sides of the trade; and
- Stay agile – with liquidity to trade through rapidly changing markets
Know the risks of trading boldly.
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, or daily inverse leveraged, investment results and intend to actively monitor and manage their investment.
Short-term performance, in particular, is not a good indication of the fund’s future performance, and an investment should not be made based solely on returns. Because of ongoing market volatility, fund performance may be subject to substantial short-term changes. For additional information, see the fund’s prospectus.
An investor should carefully consider a Fund’s investment objective, risks, charges, and expenses before investing. A Fund’s prospectus and summary prospectus contain this and other information about the Direxion Shares. To obtain a Fund’s prospectus and summary prospectus call 866-476-7523 or visit our website at www.direxion.com. A Fund’s prospectus and summary prospectus should be read carefully before investing.
Shares of the Direxion Shares are bought and sold at market price (not NAV) and are not individually redeemed from a Fund. Market Price returns are based upon the midpoint of the bid/ask spread at 4:00 pm EST (when NAV is normally calculated) and do not represent the returns you would receive if you traded shares at other times. Brokerage commissions will reduce returns. Fund returns assume that dividends and capital gains distributions have been reinvested in the Fund at NAV. Some performance results reflect expense reimbursements or recoupments and fee waivers in effect during certain periods shown. Absent these reimbursements or recoupments and fee waivers, results would have been less favorable.
The “S&P Oil & Gas Exploration & Production Select Industry Index” is a product of S&P Dow Jones Indices LLC (“SPDJI”), and has been licensed for use by Rafferty Asset Management, LLC (“Rafferty”). Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”); and these trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by Rafferty. Rafferty’s ETFs are not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability for any errors, omissions, or interruptions of the S&P Oil & Gas Exploration & Production Select Industry Index.
Direxion Shares Risks - An investment in the ETFs involves risk, including the possible loss of principal. The ETFs are non-diversified and include risks associated with concentration that results from an ETF’s investments in a particular industry or sector 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. The ETFs do not attempt to, and should not be expected to, provide returns which are a multiple of the return of their respective index for periods other than a single day. For other risks including leverage, correlation, daily compounding, market volatility and risks specific to an industry or sector, please read the prospectus.
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