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Boom Time For NRGU As Big Oil Makes A Comeback

ZMK Capital profile picture
ZMK Capital


  • Since my initial coverage of Bank of Montreal’s specialized ultra-leveraged oil ETN, global energy has been on a tear.
  • One of the best performing asset classes in 2021, energy focused securities have witnessed tremendous upside.
  • But gains so swiftly generated should not obscure some of the key risks around exchange traded notes.
  • We take a macro look at energy and review NRGU’s recent success.

Brief overview

When I initially covered (NYSEARCA:NRGU) – BMO MicroSectors US Big Oil Index 3x Leveraged ETN, I emphasized my bearish outlook. This was not because my outlook on the asset class is resolutely bearish – to the contrary, any inflationista like myself by default has a bullish opinion on global energy.

The key issue for my bearish outlook is the actual security itself and its underlying characteristics. Some reader questions have also underscored a requirement to emphasize some of the central risks to holding leveraged exchange traded notes.

But before doing so – let us have a recap on what oil and the ETN have done over the past three months.

Macro Recap

Oil in its broadest sense has been one of the best performing asset classes at the start of 2021. Surprising, given some of the changes we have witnessed. The Biden government, now well positioned to start enacting its election manifesto, has effectively put renewable energy and the green revolution very much at the heart of policy.

So, what explains big oil’s recent ascent and some of the headwinds faced by classic renewable energy plays?

A multitude of macro factors laid siege to the global energy industry in 2020:

  • The global energy asset class lost about 30% last year, being one of the key index laggards. As the SARS-COV2 outbreak spread throughout the world, economies shut down, transport seized up and global energy markets stalled. By April, we witnessed a first for US light oil futures markets, with negative print on the front month futures contract as storage capacity in Cushing, Oklahoma become saturated and demand for offshore tanker storage skyrocketed.
  • OPEC and Russia, one of the most important non-member states, had a well-publicized strategy disagreement which led to a mini-price war, creating in hand a wave of bankruptcies across

This article was written by

ZMK Capital profile picture
ZMK Capital is a Southeast Asian based prop trading desk focusing on long/ short macro set ups globally. Additionally, the desk publishes equity specific research, ETF overviews, earnings plays and macro-economic analysis. Current focal points include the global energy market, natural resources, macro-economics, interest rates and Fx. Beyond managing money in these markets, interests include data science linked to securities markets, game theory & professional sports.Feel free to direct message ZMK if you are interested in being part of a community of prop traders, investors & money managers.

Analyst’s Disclosure: I am/we are long CL1:COM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (7)

....so now it's 9/3, the price is down to $110, chart is starting to show signs of the rebound after dropping from $190. Energy seems to be back on the move. Are we ready to board this? I'm feeling like this is a great 3rd quarter play, anyone see headwinds to keep this from running?
I jump in and out as macros change. So far I'm ahead. Agreed, any 3x leverage buy is not for long-term holds.
i have 66. its so easy to predict exxons value . i earned 20,000dollars!!! lol
Thanks for the article Jacob. I'm a little confused though. NRGU is trading roughly around $160/share, which is down significantly from Pre-Covid levels. The underlying stocks, though (PXD, EOG, etc), have roughly gotten back to their pre-covid levels. I would think that NRGU would be at a much higher price at this point (potentially 600-700). Any idea why this is?
FundamentalInvestor856 profile picture
@GS444 there was a reverse split done in 2020 Fall
I went in big in NRGU in October at 34.54 along with some Canadian oil companies. Up on average 425%. Very very happy.
@Phebelucas Nice. I'm in around $70. It was kind of an obvious play in my eyes...
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