Will Chinese Demand Keep This Oil ETF GUSHing?

With oil sparking an energy rally, the spotlight is back on the sector once again. An additional catalyst could be China’s demand for oil, which could help fuel the Direxion Daily S&P Oil & Gas Exp. & Prod. Bull 2X Shares (GUSH).

The MSCI ACWI Energy Sector index is up 23% the last few months and 8% so far in 2021. Unexpected productions cuts are helping to boost prices, and now the second largest economy can provide even more tailwinds.

“The world’s top oil importer, China, significantly boosted its crude oil imports at the start of the year compared to the end of last year, helping to support global oil demand despite lockdowns in parts of China and many major European economies,” an OilPrice.com article said.

“China’s oil imports are estimated to have jumped by more than 32 percent in January compared to relatively weak December imports on the back of strong buying from independent refiners who started to use their allocated import quotas for 2021,” the article added. “Buying from the so-called teapots, which account for around a fifth of Chinese total imports, had slowed down toward the end of 2020 as many of the refiners based in the Shandong province had already used up their quotas earlier in the year, taking advantage of the lowest prices in years to stock up on low-priced crude.”

GUSH seeks daily investment results equal to 200% of the daily performance of the S&P Oil & Gas Exploration & Production Select Industry Index. The fund, under normal circumstances, invests at least 80% of its net assets (plus borrowing for investment purposes) in financial instruments and securities of the index, ETFs that track the index, and other financial instruments that provide daily leveraged exposure to the index or ETFs that track the index.

GUSH Chart

Surprise Production Cuts in Saudi Arabia

Thanks to a rally in oil prices, GUSH is up 53% year-to-date. A surprise production cut by Saudi Arabia may have thrown the oil markets for a loop, but bullish traders have welcomed the move.

“Saudi production cuts combined with strong Asian demand have, despite lockdowns and reduced mobility, started to bite with the backwardation in Brent rising to a one-year high, a sign that large stockpiles are shrinking fast. Also, in China, the recent liquidity squeeze may be over for now thereby reducing demand risks from the world’s biggest importer,” Saxo Bank strategists said.

GUSH Chart

For more news and information, visit the Leveraged & Inverse Channel.