Yahoo Finance Oil Headed for Best Week in 2 Months: Energy ETFs in Focus
Oil saw a strong rebound this week, buoyed by solid projections for crude demand. Both Brent and the U.S. crude gained more than 3% for the week, marking the best week since Apr 5. The solid outlook is expected to fuel a rally in the ETF space as well.
We have highlighted five popular ETFs from the space that could be compelling plays, given that these have a solid Zacks ETF Rank #1 (Strong Buy) or #2 (Buy). These are Energy Select Sector SPDR XLE, Vanguard Energy ETF VDE, SPDR S&P Oil & Gas Exploration & Production ETF XOP, Fidelity MSCI Energy Index ETF FENY and VanEck Vectors Oil Services ETF OIH.
Improving Demand Picture
The Organization of the Petroleum Exporting Countries (“OPEC”) expects strong growth in global oil demand in 2024, citing higher demand for travel and tourism in the second half of the year. It expects world oil demand to grow by 2.25 million barrels per day (bpd) in 2024 and by 1.85 million bpd in 2025. Demand is expected to increase to 116 million bpd or higher by 2045.
The International Energy Agency sees oil demand peaking by 2029, leveling off at around 106 million bpd toward the end of the decade. Meanwhile, the Department of Energy projects global oil demand to rise by 1.1 million bpd this year compared with the previously stated 900,000 bpd. The increased demand implies a supply deficit, with world production expected to rise 800,000 bpd in 2024.
OPEC, along with its allies such as Russia, agreed to extend the cuts of 3.66 million bpd by a year until the end of 2025 and prolong the cuts of 2.2 million bpd by three months until the end of September 2024. OPEC+ will gradually phase out the cuts of 2.2 million bpd from October 2024 to September 2025 (read: Will OPEC+ Output Cuts At All Boost Oil ETFs Ahead?).
Further, oil price strength came from Goldman's bullish outlook. Per Goldman, Brent crude prices will rise to $86 per barrel this summer amid solid consumer demand, which will put the market into a sizeable supply deficit of 1.3 million barrels bpd in the third quarter.
However, the concerns started to build up again in the energy space after the Fed penciled in one rate cut this year that might slow down economic growth and dampen fuel demand.
Here, we have profiled the above-mentioned ETFs:
Energy Select Sector SPDR (XLE)
Energy Select Sector SPDR is the largest and the most popular ETF in the energy space, with an AUM of $37.3 billion and an average daily volume of 14.4 million shares per day. It offers exposure to the broad energy space and follows the Energy Select Sector Index. Energy Select Sector SPDR holds 22 securities in its basket and charges 9 bps in annual fees. It sports a Zacks ETF Rank #1, with a High risk outlook (read: ConocoPhillips to Buy Marathon Oil: Energy ETFs to Gain).
Vanguard Energy ETF (VDE)
Vanguard Energy ETF provides exposure to a basket of 113 energy stocks by tracking the MSCI US Investable Market Energy 25/50 Index. Vanguard Energy ETF has amassed $8.5 billion in its asset base. It sees a good volume of about 444,000 shares. It charges 10 bps in annual fees and flaunts a Zacks ETF Rank #1, with a High risk outlook.
SPDR S&P Oil & Gas Exploration & Production ETF (XOP)
SPDR S&P Oil & Gas Exploration & Production ETF provides exposure to 51 oil and gas exploration and production companies by tracking the S&P Oil & Gas Exploration & Production Select Industry Index. It has an AUM of $3.7 billion and trades in an average daily volume of 3 million shares. SPDR S&P Oil & Gas Exploration & Production ETF charges 35 bps in fees per year and sports a Zacks ETF Rank #1, with a High risk outlook (read: Can Oil & Energy ETFs Continue to Soar?).
Fidelity MSCI Energy Index ETF (FENY)
Fidelity MSCI Energy Index ETF fund follows the MSCI USA IMI Energy Index, holding 117 stocks in its basket. It charges 8 bps in annual fees and trades in a good volume of around 525,000 shares. Fidelity MSCI Energy Index ETF has accumulated $2 billion in its asset base and has a Zacks ETF Rank #2, 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 26 stocks in its basket. With an AUM of $1.8 billion, VanEck Vectors Oil Services ETF charges 35 bps in annual fees and trades in an average daily volume of 348,000 shares. It has a Zacks ETF Rank #2, with a High risk outlook.
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Energy Select Sector SPDR ETF (XLE): ETF Research Reports
SPDR S&P Oil & Gas Exploration & Production ETF (XOP): ETF Research Reports
Vanguard Energy ETF (VDE): ETF Research Reports
VanEck Oil Services ETF (OIH): ETF Research Reports
Fidelity MSCI Energy Index ETF (FENY): ETF Research Reports
