Does The Energy Sector and "ERX" Still Have Room to Run?

The S&P 500 Energy index is up 26% for the year, highlighting the strength in the sector. Certain analysts suspect that the sector still has room to run, which helps bullish traders and the Direxion Daily Energy Bull 3X Shares (ERX).

The energy sector’s turnaround is certainly a 180-degree turn from 2020. ERX is already up 56% so far in 2021.

“After years of underperformance, the U.S. energy sector has been displaying flashes of brilliance that suggest that it’s still got some legs to run,” an article said. “The sector has just managed to trounce all other 10 sectors of the U.S. economy in the first quarter of the current year, bouncing back from historical lows set in 2020.”

ERX seeks daily investment results equal to 200% of the daily performance of the Energy Select Sector Index. The index is provided by S&P Dow Jones Indices and includes domestic companies from the energy sector, which includes the following industries: oil, gas, and consumable fuels, and energy equipment and services.

ERX Chart

ERX data by YCharts

Can the sector maintain strong momentum?

Thanks to the International Energy Agency (IEA) issuing a bullish oil report for 2021, early indications show that the energy sector should be able to maintain its strong momentum. That bodes well for ERX traders.

“It’s hard to imagine the energy sector making another strong run unless oil and gas prices can continue their impressive climb,” the article said further. “Those stock gains have largely coincided with oil prices climbing from historical lows after prices crashed into negative territory in April 2020. The good news for the bulls is that the oil outlook remains great.”

Furthermore, global demand should sustain itself for the rest of the year.

“The IEA revised up global oil demand in 2021 by 230,000 b/d to 96.7 mb/d, good for a 5.7 mb/d increase from 2020 levels,” the article said. “The energy watchdog has based the upgrade on encouraging economic indicators. However, it says recovery remains fragile due to surging Covid-19 cases in key consumer regions.”

“The IEA says the biggest demand growth will come in the latter half of the current year, with strong demand growth requiring an additional 2 mb/d of extra crude to keep the markets well supplied,” the article added. “However, don’t rush to buy barrels of crude, hoping to flip when prices turn up because the IEA says a supply crunch is not going to happen.”

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