On Thursday, oil prices hit their highest levels since early November. Equity-based energy exchange traded funds, though it was not the case yesterday, have predictably been enjoying oil's resurgence and that includes leveraged funds.
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The Direxion Daily S&P Oil & Gas Exploration & Production Bull Shares (GUSH) is near the top of that list. Even with Thursday's tumble of 9.3 percent, GUSH is up 68.3 percent over the past three months. GUSH attempts to deliver three times the daily performance of the S&P Oil & Gas Exploration & Production Select Industry Index, the same benchmark tracked by the popular SPDR S&P Oil & Gas Exploration & Production ETF (XOP).
Not surprisingly, those gains and other impressive returns notched by rival energy ETFs in short order are making life hard for short sellers who previously attacked the energy sector with plenty of fervor. Data indicate forced short covering of energy stocks is becoming a regular occurrence, as the recent oil rally has caught many bearish traders off guard.
GUSH, XOP have soaring without significant production cuts from major oil-producing countries, such as Russia and the Organization of Petroleum Exporting Countries.
he rally in oil has largely been driven by market sentiment, since theres been no real change in supply and demand balance. In fact, crude prices slid after talks in Dohar, Qatar, among the worlds largest producers ended without an agreement to limit supplies. Many see this as a sign that OPEC is in disarray and anticipate a selloff. Iran, which has just started oil exports after international sanctions were lifted in January, has refused any limits on its output before reaching pre-sanctions levels. And according to Reuters News, despite the short-term rally, between 1 and 2 million barrels of excess crude is being pumped into storage tanks around the globe, said Direxion in a recent note.
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Traders have been skittish about GUSH. Data indicate that although GUSH has surged more than 65 percent over the past month, the ETF has averaged daily outflows during that time. However, for the five days ended April 27, volume in GUSH was nearly six percent above the trailing 20-day average, according to Direxion data.
On the demand side, the International Energy Agency (IEA) projects that global demand growth for oil will stay under 1.2% through the year. Chinese economic growth is the slowest in seven years. Slower demand in China, the worlds second-largest oil consumer, continues as oil imports in China have fallen by 218,000 barrels per day to a 2-year low, adds Direxion.
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