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Bearish Energy ETF Could Be Ready For Biden Bounce

November 9, 2020 8:52 am
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Bearish Energy ETF Could Be Ready For Biden Bounce

It's already been a banner year for bearish oil bets with crude ranking as one of 2020's worst-performing commodities, but more could be on the way for oil shorts with it now clear Joe Biden will be the 46th president of the United States.

What Happened

The Direxion Daily Energy Bear 2X Shares (NYSE:ERY) is an idea for aggressive traders looking to capitalize on weakness in energy equities. ERY attempts to deliver double the daily inverse returns of the Energy Select Sector Index.

ERY's recent price action suggests it is a fine way of profiting from Biden's energy policy, which is largely expected to favor renewables producers. Over the past month, the bearish ERY is higher by almost 14%.

Why It's Important

Multiple factors point to potential near-term upside for the double-leveraged, inverse ERY.

“A Biden presidency means the return of Iranian crude (i.e., 1 to 1.8 mm/bpd) to global markets toward the end of 2021,” said Rareview Macro founder Neil Azous in a recent note.

Additionally, new supply from some members of the Organization of Petroleum Exporting Countries (OPEC) could be a drag on crude prices going forward.

“The increase in Libya’s crude production complicates OPEC+ balancing supply. Note, it was reported that Libyan oil production exceeded 1 million barrels per day last week,” said Azous.

Underscoring how dire things are in the energy patch, shorting oil and/or being long ERY is an appealing idea despite some favorable Election Day news for the energy sector in states including Alaska, Louisiana and Texas – three of the largest energy producing regions in the country.

What's Next

Obviously, Inauguration Day is still more than two months away, so it remains to be seen how the Biden Administration handles the coronavirus pandemic and what the state of the pandemic is in late January.

However, oil could be vulnerable and ERY could be lucrative on the back of increasing lockdown speculation as the U.S. is averaging more than 100,000 cases per day.

“Short-term COVID-related risk continues. Lockdowns and lack of mobility will become a more significant talking point in the US, affecting demand,” said Azous. “However, the swing vote that will kill the price is any COVID increase in Asia as supply/demand fears are currently contained in the US and Europe.”

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