Yahoo Finance Energy ETFs Rally as Oil Prices Soar
After falling to the lowest level since December 2021 on fears that the banking crisis could dent global economic growth, oil price notched the steepest one-day increase in more than a year to start the new month. Oil price jumped by 6.3% to $84.93 per barrel for Brent and $80.42 per barrel for U.S. crude. The rally came after Saudi Arabia and other leading members of the OPEC+ members announced surprise cuts in production.
While most energy ETFs rallied, Invesco S&P SmallCap Energy ETF PSCE, iShares U.S. Oil Equipment & Services ETF IEZ, SPDR S&P Oil & Gas Equipment & Services ETF XES, VanEck Vectors Oil Services ETF OIH and First Trust Natural Gas ETF FCG stole the show, gaining about 6% each.
Saudi Arabia and other OPEC+ oil producers announced further oil output cuts of around 1.16 million barrels per day to stabilize markets hit by fears of slowing economic growth and a potential banking crisis. The voluntary cuts will begin in May and run until the end of 2023, Saudi Arabia announced, citing it was a “precautionary measure” targeted toward stabilizing the oil market. Notably, the group accounts for about 40% of all the world's crude oil output.
Saudi Arabia is reducing output by 500,000 barrels per day and Iraq by 211,000. United Arab Emirates will cut output by 144,000 barrels per day. Kuwait, Algeria and Oman will also lower production by 128,000, 48,000 and 40,000 barrels per day, respectively.
The move comes on the back of Russia’s decision to trim oil production by 500,000 barrels per day until the end of 2023 (read: Oil ETFs Gaining Most Cash Since 2020: Time to Tap?).
The surprise reduction in supply promped many banks and analysts to raise the oil price forecast. The latest move could lift oil prices by $10 per barrel, per the head of investment firm Pickering Energy Partners. Goldman Sachs raised its forecast for Brent to $95 a barrel by the end of the year and to $100 for 2024. The planned oil output cuts by OPEC may push oil prices toward the $100 mark again, considering China’s reopening and Russia’s output cuts as a retaliation move against Western sanctions, according to CMC Markets’ analyst Tina Teng as told on CNBC.
Further, the steep rally in oil prices has strengthened a state of backwardation, where later-dated contracts are cheaper than near-term contracts in the oil futures market. This signals that the oil market is tightening and demand is robust, paving the way for an oil rally. This trend is likely to persist, at least for the near term, acting as the biggest catalyst for the commodity.
We profiled the above-mentioned ETFs below:
Invesco S&P SmallCap Energy ETF (PSCE)
Invesco S&P SmallCap Energy ETF offers exposure to the companies that are principally engaged in producing, distributing or servicing energy-related products, including oil and gas exploration and production, refining, oil services and pipelines. It tracks the S&P Small Cap 600 Capped Energy Index, holding 31 stocks in its basket.
Invesco S&P SmallCap Energy ETF has accumulated $106 million in its asset base and charges 29 bps in annual fees. It trades in an average daily volume of 139,000 shares and has a Zacks ETF Rank #2 (Buy) with a High risk outlook.
iShares U.S. Oil Equipment & Services ETF (IEZ)
iShares U.S. Oil Equipment & Services ETF offers exposure to U.S. companies that provide equipment and services for oil exploration and extraction. It follows the Dow Jones U.S. Select Oil Equipment & Services Index, holding 29 stocks in its basket (read: What Lies Ahead for Oil & Energy ETFs in the Medium Term?).
iShares U.S. Oil Equipment & Services ETF has amassed $274.5 million in its asset base while charging 39 bps in fees per year from investors. It trades in a volume of 533,000 shares a day on average and has a Zacks ETF Rank #3 (Hold) with a High risk outlook.
SPDR S&P Oil & Gas Equipment & Services ETF (XES)
SPDR S&P Oil & Gas Equipment & Services ETF tracks the S&P Oil & Gas Equipment & Services Select Industry Index, which measures the performance of the companies engaged in the oil and gas equipment and services industry. It holds 33 stocks in its basket with AUM of $430.8 million.
SPDR S&P Oil & Gas Equipment & Services ETF charges 33 bps in fees per year from investors and trades in an average daily volume of 182,000 shares. It has a Zacks ETF Rank #3 with a High risk outlook.
VanEck Vectors Oil Services ETF (OIH)
VanEck Vectors Oil Services ETF tracks the MVIS U.S. Listed Oil Services 25 Index, which offers exposure to companies involved in oil services to the upstream oil sector, including oil equipment, oil services or oil drilling. It holds 25 stocks in its basket.
With AUM of $2.3 billion, VanEck Vectors Oil Services ETF charges 35 bps in annual fees. The product trades in an average daily volume of 752,000 shares and has a Zacks ETF Rank #3 with a High risk outlook.
First Trust Natural Gas ETF (FCG)
First Trust ISE-Revere Natural Gas Index Fund offers exposure to U.S. companies that derive a substantial portion of their revenues from the exploration and production of natural gas. It follows the ISE-REVERE Natural Gas Index and holds 48 stocks in its basket.
First Trust ISE-Revere Natural Gas Index Fund has amassed $524.8 million in its asset base while charging 60 bps in annual fees. Volume is good, with 563,000 shares exchanged per day, on average. The product has a Zacks ETF Rank #3 with a High risk outlook (read: Time to Buy Occidental ETFs After Buffett's Continued Bullishness?).
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iShares U.S. Oil Equipment & Services ETF (IEZ): ETF Research Reports
SPDR S&P Oil & Gas Equipment & Services ETF (XES): ETF Research Reports
First Trust Natural Gas ETF (FCG): ETF Research Reports
VanEck Oil Services ETF (OIH): ETF Research Reports
Invesco S&P SmallCap Energy ETF (PSCE): ETF Research Reports
