Russia is the third largest oil producer in the world, making up 11% of global supply, according to data from the U.S. Energy Information Administration (EIA). It is also a major natural gas supplier. Europe is heavily dependent on Russia for its energy supplies.
Nord Stream 2 is a 1,200km pipeline under the Baltic Sea, which plans to take gas from the Russian coast near St. Petersburg to Lubmin in Germany. The pipeline was completed last September at a cost of 10 billion Euros ($11 billion). In response to Russia’s invasion of Ukraine, German Chancellor Olaf Scholz has suspended the review process, which means the pipeline cannot operate until this is done.
The idea with this is to hit Russia where it hurts, as the top exports of Russia are Crude Petroleum ($123 billion), Refined Petroleum ($66.2 billion) and Petroleum Gas ($26.3 billion). Nord Stream 2 was to run in parallel with the existing gas pipeline, Nord Stream, which has been online since 2011. Combined together, these two pipelines would deliver a quarter of the gas (110 billion cubic metres) for the European Union.
Of course, this move is a double-edged sword. As the prices of energy commodities such as oil and gas are governed by supply and demand, just like everything else, supply constraint in Russia could cause energy prices to spike in Europe and most of the rest of the world. Investors seem to be already anticipating this with the WTI up 6.7% over the past five days to close near $100 per barrel.
Russia has also been cut off from Swift , the global financial artery that allows the smooth and rapid transfer of money across borders. This would be expected to further impact Russian trading ability.
To help investors navigate the crisis, In this article, I reveal my top three energy ETF picks to profit from the Ukraine-Russia crisis. Please note that these are leveraged ETFs, and investors should be warned, leveraged ETFs use derivatives to amplify investing returns. This is great on the positive side, as a 6% increase in the index will cause a 12% increase in a double leveraged ETF. However, this also works on the flip side - for example, a 10% decrease in the index would cause the double leveraged ETF to decrease by 20%. This is just something you should be aware of, and it is also a good time to remind readers that this article is not financial advice.
1. ProShares Ultra Oil & Gas ETF
The ProShares Ultra Oil & Gas ETF (ETF) tracks the Dow Jones U.S. Oil & Gas Index, but with double (or 200%) leverage.
This index measures the performance of the major energy companies, which include major oil companies, pipelines, gas suppliers and even oil drilling equipment providers. The ETF charges 95 basis points in fees per year.
2. MicroSectors Oil & Gas Exploration & Production 3X Leveraged ETN
The MicroSectors Oil & Gas Exploration & Production 3X Leveraged ETN (OILU) is a triple (300%) leveraged exchange-traded note (ETN) that tracks the MicroSectors Oil & Gas Exploration & Production Index.
An ETN is a type of bond. At maturity, it will pay the return of the index it tracks. However, ETNs do not pay any interest payments like a bond.
In this case, the ETN has exposure to U.S. listed large-cap companies which are involved in the exploration and production of oil and gas.The ETC charges investors 95 basis points in annual fees.
3. Direxion Daily S&P Oil & Gas Exploration & Production 2X Shares ETF
TheDirexion Daily S&P Oil & Gas Exploration & Production 2X Shares ETF (GUSH, Financial)offers double (or 200%) leveraged exposure to the daily performance of the S&P Oil & Gas Exploration & Production Select Industry Index. It has an expense ratio of 1.14%.
