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Energy ETFs Jump on Tanker Attacks: What Lies in Store?
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After solid trading in the first quarter, oil nosedived into a bear market amid worsening U.S. trade relation with China and Mexico that raised fears of global growth slowdown threatening demand. Crude is down over 22% since late April high of about $66 a barrel.
But the commodity reversed some of its losses, spiking more than 2% on Jun 13 on fear of supply disruption, following attacks on two tankers in the Gulf of Oman. It was the second time in a month that tankers have been attacked in the world's most important zone for oil supplies. The attack in Gulf of Oman, which feeds into the Strait of Hormuz, through which 40% of the world's crude shipped by sea passes has threatened oil supply at large (read: How to Trade Oil Rush With These ETFs).
The explosion in the region renewed geopolitical concerns as U.S. Secretary of State Mike Pompeo accused Iran of the attacks, calling the Islamic Republic "a threat to international peace and stability" while an Iranian official said that Tehran had "nothing to do" with the attacks. Additionally, reports that OPEC production fell to its lowest level in five years added to the strength.
The jump in oil prices also had a big impact on energy stock ETFs on the day, helping these achieve gains as well. In fact, Invesco Dynamic Oil & Gas Services ETF (PXJ - Free Report) stole the show, climbing 4% on the day. This was followed by increases of more than 3% in VanEck Vectors Oil Services ETF (OIH - Free Report) , SPDR S&P Oil & Gas Equipment & Services ETF (XES - Free Report) and iShares U.S. Oil Equipment & Services ETF (IEZ - Free Report) .
PXJ
This product follows the Dynamic Oil Services Intellidex Index, which thoroughly evaluates companies based on a variety of investment merit criteria, including price momentum, earnings momentum, quality, management action and value. It holds a basket of 29 stocks with AUM of $13.9 million and charges 63 bps in annual fees (read: What Went Wrong With Oil Services ETFs in May?).
OIH
This fund tracks the MVIS U.S. Listed Oil Services 25 Index, which offers exposure to the companies involved in oil services to the upstream oil sector, including oil equipment, oil services or oil drilling. Holding 23 stocks in its basket, it has amassed $668.7 million and charges 35 bps in annual fees.
XES
With AUM of $177.6 million, this fund 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 40 stocks in its basket and has expense ratio of 0.35% (read: Pain or Gain Ahead for Oil & Energy ETFs?).
IEZ
This ETF offers exposure to 39 U.S. companies that provide equipment and services for oil exploration and extraction by tracking the Dow Jones U.S. Select Oil Equipment & Services Index. It has been able to manage $107.5 million in its asset base and charges 43 bps in fees per year.
What Lies Ahead?
Currently, the path of oil price seems volatile. This is because supply conditions are still tight, given declines in Venezuela, Iran, potentially Libya and temporary outages in Russia. The Organization of the Petroleum Exporting Countries (OPEC) and some non-OPEC producers including Russia have been withholding oil supply since the start of the year to tackle global supply glut and rebalance the oil market. They are set to discuss whether to extend oil supply cuts beyond June later this month.
However, the ongoing trade worries coupled with bouts of weak data across the globe and an inverted yield curve, which suggests imminent recession, make the oil outlook gloomy. This is because factory activity contracted in the United States, Europe and Asia last month due to deepening trade dispute between Washington and Beijing, which will weigh on demand. The International Energy Agency (IEA) reduced oil demand forecast by 100,000 barrels per day to 1.2 million barrels per day for this year (read: Oil ETFs Amid Tug of War Between OPEC Deal & Trade Tensions).
Further, the above-mentioned funds have a Zacks ETF Rank #5 (Strong Sell) with a High risk outlook, suggesting their underperformance in the months ahead.
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Energy ETFs Jump on Tanker Attacks: What Lies in Store?
After solid trading in the first quarter, oil nosedived into a bear market amid worsening U.S. trade relation with China and Mexico that raised fears of global growth slowdown threatening demand. Crude is down over 22% since late April high of about $66 a barrel.
But the commodity reversed some of its losses, spiking more than 2% on Jun 13 on fear of supply disruption, following attacks on two tankers in the Gulf of Oman. It was the second time in a month that tankers have been attacked in the world's most important zone for oil supplies. The attack in Gulf of Oman, which feeds into the Strait of Hormuz, through which 40% of the world's crude shipped by sea passes has threatened oil supply at large (read: How to Trade Oil Rush With These ETFs).
The explosion in the region renewed geopolitical concerns as U.S. Secretary of State Mike Pompeo accused Iran of the attacks, calling the Islamic Republic "a threat to international peace and stability" while an Iranian official said that Tehran had "nothing to do" with the attacks. Additionally, reports that OPEC production fell to its lowest level in five years added to the strength.
The jump in oil prices also had a big impact on energy stock ETFs on the day, helping these achieve gains as well. In fact, Invesco Dynamic Oil & Gas Services ETF (PXJ - Free Report) stole the show, climbing 4% on the day. This was followed by increases of more than 3% in VanEck Vectors Oil Services ETF (OIH - Free Report) , SPDR S&P Oil & Gas Equipment & Services ETF (XES - Free Report) and iShares U.S. Oil Equipment & Services ETF (IEZ - Free Report) .
PXJ
This product follows the Dynamic Oil Services Intellidex Index, which thoroughly evaluates companies based on a variety of investment merit criteria, including price momentum, earnings momentum, quality, management action and value. It holds a basket of 29 stocks with AUM of $13.9 million and charges 63 bps in annual fees (read: What Went Wrong With Oil Services ETFs in May?).
OIH
This fund tracks the MVIS U.S. Listed Oil Services 25 Index, which offers exposure to the companies involved in oil services to the upstream oil sector, including oil equipment, oil services or oil drilling. Holding 23 stocks in its basket, it has amassed $668.7 million and charges 35 bps in annual fees.
XES
With AUM of $177.6 million, this fund 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 40 stocks in its basket and has expense ratio of 0.35% (read: Pain or Gain Ahead for Oil & Energy ETFs?).
IEZ
This ETF offers exposure to 39 U.S. companies that provide equipment and services for oil exploration and extraction by tracking the Dow Jones U.S. Select Oil Equipment & Services Index. It has been able to manage $107.5 million in its asset base and charges 43 bps in fees per year.
What Lies Ahead?
Currently, the path of oil price seems volatile. This is because supply conditions are still tight, given declines in Venezuela, Iran, potentially Libya and temporary outages in Russia. The Organization of the Petroleum Exporting Countries (OPEC) and some non-OPEC producers including Russia have been withholding oil supply since the start of the year to tackle global supply glut and rebalance the oil market. They are set to discuss whether to extend oil supply cuts beyond June later this month.
However, the ongoing trade worries coupled with bouts of weak data across the globe and an inverted yield curve, which suggests imminent recession, make the oil outlook gloomy. This is because factory activity contracted in the United States, Europe and Asia last month due to deepening trade dispute between Washington and Beijing, which will weigh on demand. The International Energy Agency (IEA) reduced oil demand forecast by 100,000 barrels per day to 1.2 million barrels per day for this year (read: Oil ETFs Amid Tug of War Between OPEC Deal & Trade Tensions).
Further, the above-mentioned funds have a Zacks ETF Rank #5 (Strong Sell) with a High risk outlook, suggesting their underperformance in the months ahead.
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 >>