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Energy has strongly rebounded this year and is the top-performing sector. This is especially true, as oil price has been benefiting the most from the expectation of swift global economic recovery buoyed by rapid vaccination rollout, more vaccine progress and a new $1.9 trillion stimulus. The latest upbeat economic data from United States and China also bolstered confidence in the global economic rebound that will lift up the demand for energy.
Oil price has gained more than 30% so far this year. Brent topped $71 per barrel for the first time since January 2020 while U.S. crude hit the highest in more than two years. Along with a brightening demand outlook, tightening supply conditions gave a boost to the oil price (read: Sector ETFs to Benefit/Lose as Oil May Hit $70 Soon).
An attack on a key Saudi Arabian refining facility — Ras Tanura on the Persian Gulf — has led to disruption in oil supply in the Kingdom's oldest and largest refinery and a key hub for its market-leading exports. The terminal is capable of exporting roughly 6.5 million barrels a day — nearly 7% of oil demand. The attack follows a recent escalation of hostilities in the Middle East region after Yemen’s Houthi rebels launched a series of attacks on Saudi Arabia. Additionally, a severe cold snap in Texas and the other parts of southern United States last month knocked out production of roughly 4 million barrels per day.
Last week, the Organization of the Petroleum Exporting Countries (OPEC), Russia and the oil-producing allies agreed to extend their production cuts into April. This has also supported oil price.
Adding to the positive sentiment is the state of backwardation in the oil futures market, where later-dated contracts are cheaper than the near-term contracts. Per CME Group data, Brent futures for June delivery were trading about 54 cents below May contracts at the time of writing. 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 in the near term, acting as the biggest catalyst for the commodity.
Given the bullish trends, a raft of investment banks raised their oil price forecasts. Goldman Sachs (GS) estimates that Brent will top $75 a barrel in the second quarter and $80 a barrel in the third quarter, up $5 per barrel each from the previous forecast. JP Morgan (JPM) expects oil prices to peak at $80 per barrel in the second quarter of calendar year 2022.
As such, we have highlighted five ETFs & stocks that have been at the forefront of the energy sector rally this year.
Best ETFs
Though many of these energy ETFs currently have a Zacks ETF Rank #4 (Sell) or 5 (Strong Sell), they seem excellent choices to play the trend at least in the near term.
This fund offers exposure to the small-cap segment of the energy sector by tracking the S&P Small Cap 600 Capped Energy Index (read: Best Sector of February and Its Top ETFs).
This fund follows the Dorsey Wright Energy Technical Leaders Index, which measures the performance of the companies that are showing relative strength (momentum).
First Trust ISE-Revere Natural Gas Index Fund (FCG - Free Report)
This fund offers exposure to U.S. stocks that derive a substantial portion of their revenues from the exploration and production of natural gas. It follows the ISE-Revere Natural Gas Index.
Invesco Dynamic Energy Exploration & Production ETF (PXE - Free Report)
This product follows the Dynamic Energy Exploration & Production Intellidex Index, which thoroughly evaluates companies based on a variety of investment merit criteria, including price momentum, earnings momentum, quality, management action and value.
SPDR S&P Oil & Gas Exploration & Production ETF (XOP - Free Report)
This fund provides exposure to oil and gas exploration and production companies by tracking the S&P Oil & Gas Exploration & Production Select Industry Index (read: Sector ETFs to Win/Lose on Higher Rates).
It is engaged in the exploration and development of oil and gas, and operates primarily in Texas and Kansas.
Zacks Rank: #2 VGM Score: C Market Cap: $208.3 million YTD Return: 286.4%
U.S. Well Services Inc.
This special purpose acquisition company aims to acquire one and more businesses or assets, via a merger, capital stock exchange (read: 3 ETFs to Play the SPAC Mania).
Zacks Rank: #3 VGM Score: A Market Cap: $106.7 million YTD Return: 247.6%
Centennial Resource Development Inc.
This independent oil and gas exploration and production company primarily develops unconventional hydrocarbon reserves in the Delaware Basin, a part of the prolific Permian Basin.
This independent oil and gas company is engaged in the exploration, exploitation, development, acquisition and production of natural gas and crude oil in North America (see: all the Energy ETFs here).
Image: Bigstock
ETFs & Stocks Leading the Energy Rally This Year
Energy has strongly rebounded this year and is the top-performing sector. This is especially true, as oil price has been benefiting the most from the expectation of swift global economic recovery buoyed by rapid vaccination rollout, more vaccine progress and a new $1.9 trillion stimulus. The latest upbeat economic data from United States and China also bolstered confidence in the global economic rebound that will lift up the demand for energy.
Oil price has gained more than 30% so far this year. Brent topped $71 per barrel for the first time since January 2020 while U.S. crude hit the highest in more than two years. Along with a brightening demand outlook, tightening supply conditions gave a boost to the oil price (read: Sector ETFs to Benefit/Lose as Oil May Hit $70 Soon).
An attack on a key Saudi Arabian refining facility — Ras Tanura on the Persian Gulf — has led to disruption in oil supply in the Kingdom's oldest and largest refinery and a key hub for its market-leading exports. The terminal is capable of exporting roughly 6.5 million barrels a day — nearly 7% of oil demand. The attack follows a recent escalation of hostilities in the Middle East region after Yemen’s Houthi rebels launched a series of attacks on Saudi Arabia. Additionally, a severe cold snap in Texas and the other parts of southern United States last month knocked out production of roughly 4 million barrels per day.
Last week, the Organization of the Petroleum Exporting Countries (OPEC), Russia and the oil-producing allies agreed to extend their production cuts into April. This has also supported oil price.
Adding to the positive sentiment is the state of backwardation in the oil futures market, where later-dated contracts are cheaper than the near-term contracts. Per CME Group data, Brent futures for June delivery were trading about 54 cents below May contracts at the time of writing. 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 in the near term, acting as the biggest catalyst for the commodity.
Given the bullish trends, a raft of investment banks raised their oil price forecasts. Goldman Sachs (GS) estimates that Brent will top $75 a barrel in the second quarter and $80 a barrel in the third quarter, up $5 per barrel each from the previous forecast. JP Morgan (JPM) expects oil prices to peak at $80 per barrel in the second quarter of calendar year 2022.
As such, we have highlighted five ETFs & stocks that have been at the forefront of the energy sector rally this year.
Best ETFs
Though many of these energy ETFs currently have a Zacks ETF Rank #4 (Sell) or 5 (Strong Sell), they seem excellent choices to play the trend at least in the near term.
Invesco S&P SmallCap Energy ETF (PSCE - Free Report)
This fund offers exposure to the small-cap segment of the energy sector by tracking the S&P Small Cap 600 Capped Energy Index (read: Best Sector of February and Its Top ETFs).
Zacks Rank: #5
AUM: $106.4 million
Expense Ratio: 0.29%
YTD Return: 62.6%
Invesco DWA Energy Momentum ETF (PXI - Free Report)
This fund follows the Dorsey Wright Energy Technical Leaders Index, which measures the performance of the companies that are showing relative strength (momentum).
Zacks Rank: #5
AUM: $124.2 million
Expense Ratio: 0.60%
YTD Return: 55.9%
First Trust ISE-Revere Natural Gas Index Fund (FCG - Free Report)
This fund offers exposure to U.S. stocks that derive a substantial portion of their revenues from the exploration and production of natural gas. It follows the ISE-Revere Natural Gas Index.
Zacks Rank: #4
AUM: $192.4 million
Expense Ratio: 0.60%
YTD Return: 55.3%
Invesco Dynamic Energy Exploration & Production ETF (PXE - Free Report)
This product follows the Dynamic Energy Exploration & Production Intellidex Index, which thoroughly evaluates companies based on a variety of investment merit criteria, including price momentum, earnings momentum, quality, management action and value.
Zacks Rank: #4
AUM: $26.5 million
Expense Ratio: 0.63%
YTD Return: 54.8%
SPDR S&P Oil & Gas Exploration & Production ETF (XOP - Free Report)
This fund provides exposure to oil and gas exploration and production companies by tracking the S&P Oil & Gas Exploration & Production Select Industry Index (read: Sector ETFs to Win/Lose on Higher Rates).
Zacks Rank: #3 (Hold)
AUM: $3.9 billion
Expense Ratio: 0.35%
YTD Return: 51.6%
Best Stocks
We have highlighted the best-performing stocks that currently have a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
Aemetis Inc (AMTX - Free Report)
This advanced fuels and renewable chemicals company produces renewable chemicals and fuels using patented microbes and processes.
Zacks Rank: #3
VGM Score: C
Market Cap: $265.3 million
YTD Return: 388.3%
Ring Energy Inc. (REI - Free Report)
It is engaged in the exploration and development of oil and gas, and operates primarily in Texas and Kansas.
Zacks Rank: #2
VGM Score: C
Market Cap: $208.3 million
YTD Return: 286.4%
U.S. Well Services Inc.
This special purpose acquisition company aims to acquire one and more businesses or assets, via a merger, capital stock exchange (read: 3 ETFs to Play the SPAC Mania).
Zacks Rank: #3
VGM Score: A
Market Cap: $106.7 million
YTD Return: 247.6%
Centennial Resource Development Inc.
This independent oil and gas exploration and production company primarily develops unconventional hydrocarbon reserves in the Delaware Basin, a part of the prolific Permian Basin.
Zacks Rank: #3
VGM Score: D
Market Cap: $1.4 billion
YTD Return: 233.3%
SM Energy Company (SM - Free Report)
This independent oil and gas company is engaged in the exploration, exploitation, development, acquisition and production of natural gas and crude oil in North America (see: all the Energy ETFs here).
Zacks Rank: #3
VGM Score: B
Market Cap: $2.05 billion
YTD Return: 192.5%
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