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Leveraged Oil & Energy ETFs to Play on Saudi Attack

Sanghamitra Saha

Oil prices jumped the maximum on record after an attack on Saudi’s oilfields eliminated about 5% of global supplies. One of Saudi Arabia’s largest oilfields in Hijra Khurais and the world’s biggest crude processing facility at Abqaiq wasattacked by 10 drones, on Sep 14, per CNBC. Iran is being blamed by the United States for carrying out such devastation (read: ETFs to Win as Saudi's New Minister May Seek Same Oil Policy).

The instant reaction to the oil price was huge. “Brent prices grew more than 19% on ICE Futures Europe to $71.95 a barrel, its biggest gain in percentage terms since 1991. Trading in WTI was frozen for a few minutes because of a so-called circuit breaker, which is triggered by a gain of more than 7%. When they finally opened, futures jumped as much as 15.5% to $63.34, the most since 2008,” per Bloomberg.

Though the longer-term impact of the attack depends on how long production is disturbed, we can expect oil prices to remain elevated as of now. Yemen’s Iran-backed Houthi rebels took the responsibility for the attack on the Saudi Aramco facility. The incident caused cessation of production of 5.7 million barrels of crude a day, “more than half of Saudi Arabia’s global daily exports and more than 5% of the world’s daily crude oil production.”

Roberto Friedlander, Seaport Global’s head of energy trading, expects oil to gain $10 per barrel, depending on the timing of a turnaround, as quoted on CNBC. And if Saudi resumes production sooner than expected, “the impact is more likely to be $3-5 to Crude,” Friedlander added.

How to Profit?

If you are a believer of a prolonged extension of supply disruption, you can definitely invest in regular and leveraged oil or energy exchange-traded products for gains, at least for the short term.

Leveraged ETFs in Focus

ProShares Ultra Bloomberg Crude Oil ETF (UCO) provides a leveraged play to the crude oil segment of the commodities market. It seeks to deliver twice the return of the daily performance of the Bloomberg WTI Crude Oil Subindex, which consists of futures contracts on crude oil (read: How to Trade Oil Rush With These ETFs).

Direxion Daily S&P Oil&Gas Exploration & Production Bull 3X ETF GUSH gives three times exposure to the S&P Oil & Gas Exploration & Production Select Industry Index.

Direxion Daily Energy Bull 3X ETF (ERX) offers three times exposure to the Energy Select Sector Index.

ProShares UltraPro 3x Crude Oil ETF OILU seeks daily investment results, before fees and expenses that correspond to three times the daily performance of the Bloomberg WTI Crude Oil Subindex.

ProShares Ultra Oil & Gas (DIG) offers two times the daily performance of the Dow Jones U.S. Oil & Gas Index.

ProShares UltraPro 3x Short Crude Oil ETF OILD seeks daily investment results, before fees and expenses that correspond to three times the inverse of the daily performance of the Bloomberg WTI Crude Oil Subindex.

Any Caution?

As a caveat, investors should note that such products are suitable only for short-term traders as these are rebalanced on a daily basis (see: all Leveraged Equity ETFs here).

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. This is especially true given the news that Saudi Arabia intends to bring back a third of the lost output on Sep 16, per Wall Street Journal. So, a prolonged long-term surge from this attack is less likely.

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Click to get this free report Direxion Daily Energy Bull 3X Shares (ERX): ETF Research Reports Direxion Daily S&P Oil & Gas Exp. & Prod. Bull 3X Shares (GUSH): ETF Research Reports ProShares Ultra Bloomberg Crude Oil (UCO): ETF Research Reports ProShares Ultra Oil & Gas (DIG): ETF Research Reports ProShares UltraPro 3x Short Crude Oil ETF (OILD): ETF Research Reports ProShares UltraPro 3x Crude Oil ETF (OILU): ETF Research Reports To read this article on Zacks.com click here. Zacks Investment Research Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report