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Traders Like This Oil ETF—That's Not Good For E&P Stocks

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ETF Professor
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The energy patch has been punished this month, particularly the volatile exploration and production stocks. Just look at the widely followed S&P Oil & Gas Exploration & Production Select Industry Index (SPSIOPTR), which is lower by more than 12% month-to-date.

What Happened

Last Friday, that index added almost 3.2%, but it still lost nearly 4% on the week. The primary problem for exploration and production companies this year is that the U.S. is awash in crude and is pumping at record highs, relevant because most E&P firms operate in the U.S.

The thing is, the world's appetite for oil is projected to wane over the near-term amid intensifying recession fears for major global economies. Even the Organization of the Petroleum Exporting Countries (OPEC) is paring its 2019 global demand outlook.

Why It's Important

Last week, in the midst of mounting fears around an impending global economic slowdown, OPEC trimmed its global oil demand forecast. "The cartel also highlighted challenges in 2020 as rivals pump more, building a case to keep up an OPEC-led pact to restrain supplies,” reports Reuters.

Those headlines contributed to a 10% tumble on Friday for the Direxion Daily S&P Oil & Gas Exp. & Prod. Bear 3X Shares (NYSE: DRIP). However, underscoring the bearishness in the E&P space, DRIP still gained 8.48% last week. DRIP looks to deliver triple the daily inverse returns of the S&P Oil & Gas Exploration & Production Select Industry Index.

Data suggest traders have been embracing DRIP. For the 10 days ending Aug. 15, inflows to the bearish energy fund totaled almost 34% of its assets under management, the highest percentage among all leveraged Direxion ETFs, according to issuer data.

What's Next

Here's where things get interesting. The Direxion Daily S&P Oil & Gas Exp. & Prod. Bull 3X Shares (NYSE: GUSH), DRIP's bullish counterpart, has been adding assets, too. Traders faith in GUSH was certainly rewarded last Friday when the fund jumped 10% on above-average volume.

For the aforementioned 10-day period, GUSH saw inflows of $47.7 million, a total surpassed by just three other Direxion ETFs. Still, recent price action suggests, DRIP or the sidelines are the places to be when it comes to E&P stocks.

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