Big oil giants Chevron Corp (CVX) and Exxon Mobil Corp (XOM) moved up slightly in the pre-market session Monday in a bid to recover from last week’s losses. Both enterprises – particularly the former – suffered heavy losses following concerns about the economy.
Market Anxiety and Economic Indicators
Anxieties only became more heightened on Friday following the release of the August jobs report. Payrolls last month expanded by 142,000, up from 89,000 in July but below economists’ forecast calling for 161,000. Meanwhile, the unemployment rate declined to 4.2%, matching expectations. Still, the “real” unemployment figure – a metric that includes discouraged workers and people occupying part-time roles – jumped to 7.9%.
Naturally, the implication of a slowing economy hurt oil prices, leading to a significant decline in the benchmark indices West Texas Intermediate and Brent Crude. Adding to the jitters, deflated consumer confidence indicators in China have panicked major western brands, contributing to the threat of reduced global hydrocarbon demand and negatively impacting oil prices.
If these issues weren’t enough, geopolitical dynamics – especially in the Middle East – could unsettle the energy market in unpredictable ways. Historically, OPEC+ countries have cut production to support fading prices.
Long-term Views and Emerging Markets
Still, not every aspect of the hydrocarbon industry spells doom for investors. In the short term, Ukrainian drone attacks on Russian oil installations have greatly damaged the aggressor nation’s downstream infrastructure. Continued disruptions could artificially boost oil prices due to the supply destruction.
Looking further ahead, the International Energy Agency estimates that “India will become the largest source of global oil demand growth” between now and 2030. This demand profile could offset the slowdown from the Chinese market.
The ETF Landscape
With various factors at play, investors willing to engage in the oil market may consider Direxion’s portfolio of leveraged exchange-traded funds. For the bulls, the Direxion Daily S&P Oil & Gas Exp. & Prod. Bull 2X Shares (GUSH) offers 200% exposure to the performance of the underlying S&P Oil & Gas Exploration & Production Select Industry Index.
On the flip side, those bearish on hydrocarbons may find appeal in the Direxion Daily S&P Oil & Gas Exp. & Prod. Bear 2X Shares (DRIP). This ETF aims to replicate 200% of the inverse performance of the aforementioned index.
Regardless of the chosen fund, investors must be wary that GUSH and DRIP are designed to be held for no more than one day to avoid the daily compounding effect associated with leveraged vehicles.
GUSH and DRIP Performance
Although GUSH started the year strongly with a minor hiccup in early January, the ETF has dropped more than 18% on a year-to-date basis. The last few sessions have seen GUSH below its 50-day moving average and 200 DMA, but its resilience around the $27 price range offers hope for a potential recovery.
Conversely, DRIP faced a tough start in 2024 but enjoyed a robust performance last week, gaining over 15% in market value. The bear fund is now challenging a resistance zone in the $12 to $13 range, leaving its future trajectory uncertain.
Photos by Pete Linforth on Pixabay.
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