We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
The world is anticipating a sharp and much-needed rebound in oil prices this year on the OPEC output cut deal signed on November 30. OPEC will slash production by about 1.2 million barrels a day by January. The agreement excluded Nigeria and Libya, but enacted a quota on Iraq for the first time since the 1990s (read: Top ETF Stories of the Fourth Quarter).
Also, the OPEC powerhouse Saudi will decrease daily production by 486,000 barrels to 10.058 million barrels. Plus, on December 10, OPEC cut the first deal with non-OPEC since 2001 to reduce output this year (read: 7 ETF Areas to Hog the Limelight in 2017).
Amid this scenario, there is speculation that the deal may be not as effective as it seems now. Even if OPEC manages to be true to the deal, U.S. shale oil production will likely gain traction, bringing back oversupply into the market and weighing on oil prices.
In fact, such trends overpowered the market to start the New Year with WTI crude oil ETF United States Oil (USO - Free Report) shedding about 4.4% in the last five days (as of January 9, 2017). Also, Brent crude ETF United States Brent Oil (BNO - Free Report) was down 5.7% in the last five days (as of January 9, 2017).
In fact, both funds retreated over 3% on January 9, 2016 on a higher-than-expected U.S. rig count last week released by Baker Hughes (BHI). U.S. oil companies added four rigs last week, keeping alive the streak for the 10th successive week. As per market watchers, the average Canadian rig count for December 2016 tallied 209, up 36 from the 173 in total in November 2016, and up 49 from 160 in December 2015.
Why to Look at Oilfield Services
Against such a scenario, investors should note that drilling for new oil production in the U.S. is rising because crude prices now are hovering at profitable levels. Barclays believe that “investors should start shifting their holdings back toward oilfield services, which is one of the most under-owned sectors in the S&P 500.”
Barclays noted that “pricing and strong operating leverage on rationalized cost structures” should act as a tailwind to this space. After all, “upstream spending is now 40%+ below the 2014 peak,” leading to further room for growth. Also, Trump is expected to back fossil-fuel. As a result, higher shale production is expected ahead on easing regulation on fracking.
Investors may choose to play oil-services ETFs like VanEck Vectors Oil Services ETF (OIH - Free Report) , SPDR S&P Oil & Gas Equipment&Svcs ETF (XES - Free Report) , iShares US Oil Equipment & Services ETF (IEZ - Free Report) and PowerShares Dynamic Oil & Gas Svcs ETF (PXJ - Free Report) . All these ETFs lost around 1.5% on January 9, 2017 on a higher rig count (see all energy ETFs here).
Investors should also note that OIH, XES, IEZ and PXJ have a positive weighted alpha of 53.16, 63.33, 55.57 and 38.38, respectively, with volatility levels of 17.85%, 19.74%, 16.05% and 20.83%. A weighted alpha hints at more gains.
The weighted alpha in oilfield services ETFs is way higher than the alpha of positive 23.86 for USO. In fact, the volatility level of USO was higher (21.27%) than oil services ETFs.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
Should You Buy the Dip in Oil Services ETFs?
The world is anticipating a sharp and much-needed rebound in oil prices this year on the OPEC output cut deal signed on November 30. OPEC will slash production by about 1.2 million barrels a day by January. The agreement excluded Nigeria and Libya, but enacted a quota on Iraq for the first time since the 1990s (read: Top ETF Stories of the Fourth Quarter).
Also, the OPEC powerhouse Saudi will decrease daily production by 486,000 barrels to 10.058 million barrels. Plus, on December 10, OPEC cut the first deal with non-OPEC since 2001 to reduce output this year (read: 7 ETF Areas to Hog the Limelight in 2017).
Amid this scenario, there is speculation that the deal may be not as effective as it seems now. Even if OPEC manages to be true to the deal, U.S. shale oil production will likely gain traction, bringing back oversupply into the market and weighing on oil prices.
In fact, such trends overpowered the market to start the New Year with WTI crude oil ETF United States Oil (USO - Free Report) shedding about 4.4% in the last five days (as of January 9, 2017). Also, Brent crude ETF United States Brent Oil (BNO - Free Report) was down 5.7% in the last five days (as of January 9, 2017).
In fact, both funds retreated over 3% on January 9, 2016 on a higher-than-expected U.S. rig count last week released by Baker Hughes (BHI). U.S. oil companies added four rigs last week, keeping alive the streak for the 10th successive week. As per market watchers, the average Canadian rig count for December 2016 tallied 209, up 36 from the 173 in total in November 2016, and up 49 from 160 in December 2015.
Why to Look at Oilfield Services
Against such a scenario, investors should note that drilling for new oil production in the U.S. is rising because crude prices now are hovering at profitable levels. Barclays believe that “investors should start shifting their holdings back toward oilfield services, which is one of the most under-owned sectors in the S&P 500.”
Barclays noted that “pricing and strong operating leverage on rationalized cost structures” should act as a tailwind to this space. After all, “upstream spending is now 40%+ below the 2014 peak,” leading to further room for growth. Also, Trump is expected to back fossil-fuel. As a result, higher shale production is expected ahead on easing regulation on fracking.
Investors may choose to play oil-services ETFs like VanEck Vectors Oil Services ETF (OIH - Free Report) , SPDR S&P Oil & Gas Equipment&Svcs ETF (XES - Free Report) , iShares US Oil Equipment & Services ETF (IEZ - Free Report) and PowerShares Dynamic Oil & Gas Svcs ETF (PXJ - Free Report) . All these ETFs lost around 1.5% on January 9, 2017 on a higher rig count (see all energy ETFs here).
Investors should also note that OIH, XES, IEZ and PXJ have a positive weighted alpha of 53.16, 63.33, 55.57 and 38.38, respectively, with volatility levels of 17.85%, 19.74%, 16.05% and 20.83%. A weighted alpha hints at more gains.
The weighted alpha in oilfield services ETFs is way higher than the alpha of positive 23.86 for USO. In fact, the volatility level of USO was higher (21.27%) than oil services ETFs.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>