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Time to Cash in On the Depressed Oil Price? ETFs in Focus
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Crude oil has been on a roller-coaster ride in recent months. After crashing in mid-April, oil prices recovered in May on an improved demand outlook based on the reopening of economies. In fact, WTI crude oil spiked 88% in May, marking its best monthly performance since 1983, according to data from Bloomberg (read: Top ETF Stories of May).
Notably, coronavirus-led lockdown led to a decline demand in April while surging output reached a limit where storage capacity was full. This resulted in negative oil price in April, though prices recovered sharply in the ensuing days.
Overall, United States Brent Oil Fund LP (BNO - Free Report) and United States Oil Fund LP (USO - Free Report) have declined 40.4% and 68.9%, respectively, in the past one year (as of Jun 18, 2020). So far this year, both funds have lost 48.1% and71.7%, respectively.
What Lies Ahead?
In its oil market report, the International Energy Agency (IEA) said this week that demand is expected to decline by 8.1 million barrels per day in 2020. The decline would be the largest in history. IEA projects a rebound in oil demand by a record 5.7 million barrels per day in 2021.
The IEA said oil demand in the second quarter, which saw the maximum impact from lockdown measures, was 17.8 million barrels per day lower from the year-ago level. Notably, Beijing is canceling flights and closing schools, and several U.S. states, including Texas, Florida and California, are seeing sharp increases in new cases.
So far, output cut initiatives in the form of the OPEC+ agreement and the meeting of G20 energy ministers has supported oil prices, per IEA. In fact, oil prices jumped on Jun 18 (despite rising coronavirus cases) as OPEC and its allies met to review record oil supply cuts.
The Organization of the Petroleum Exporting Countries and allies, known as OPEC+, have been cutting output by a record 9.7 million barrels per day (bpd) or 10% of global supply since May 1.
Against this backdrop, below we highlight a few oil and energy ETFs that could be tapped now for future gains. If we go by the IEA’s projections, the energy patch is likely to see a surge in the coming year. So, investors with a strong stomach for risks may see the latest depressed price level as a lucrative buying opportunity. Below we highlight a few energy ETFs that can be bought now (read: Why Oil Recovery Appears On the Edge? ETFs in Focus).
The underlying MVIS U.S. Listed Oil Services 25 Index tracks the overall performance of U.S.-listed companies involved in oil services to the upstream oil sector, which include oil equipment, oil services, or oil drilling. The Zacks Rank #3 fund charges 35 bps in fees.
The underlying Energy Select Sector Index includes companies from the following industries: oil, gas & consumable fuels and energy equipment & services. The Zacks Rank #3 fund charges 13 bps in fees.
iShares U.S. Oil Equipment Services ETF (IEZ - Free Report)
The underlying Dow Jones US Select Oil Equip & Serv Ind is a free-float adjusted market capitalization-weighted index. It measures the performance of oil equipment & services sector of the U.S. equity market by including companies that are suppliers of equipment or services to oil fields & offshore platforms, such as drilling, exploration, engineering, logistics, seismic information services & platform construction. The Zacks Rank #3 fund charges 42 bps in fees.
The underlying S&P Oil & Gas Equipment & Services Select Industry Index represents the oil and gas equipment and services sub-industry portion of the S&P Total Markets Index. The S&P TMI tracks all the U.S. common stocks listed on the NYSE, AMEX, NASDAQ National Market and NASDAQ Small Cap exchanges. The Oil & Gas Equipment Index is a modified equal-weight index. The Zacks Rank #3 fund charges 35 bps in fees.
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Time to Cash in On the Depressed Oil Price? ETFs in Focus
Crude oil has been on a roller-coaster ride in recent months. After crashing in mid-April, oil prices recovered in May on an improved demand outlook based on the reopening of economies. In fact, WTI crude oil spiked 88% in May, marking its best monthly performance since 1983, according to data from Bloomberg (read: Top ETF Stories of May).
Notably, coronavirus-led lockdown led to a decline demand in April while surging output reached a limit where storage capacity was full. This resulted in negative oil price in April, though prices recovered sharply in the ensuing days.
Overall, United States Brent Oil Fund LP (BNO - Free Report) and United States Oil Fund LP (USO - Free Report) have declined 40.4% and 68.9%, respectively, in the past one year (as of Jun 18, 2020). So far this year, both funds have lost 48.1% and71.7%, respectively.
What Lies Ahead?
In its oil market report, the International Energy Agency (IEA) said this week that demand is expected to decline by 8.1 million barrels per day in 2020. The decline would be the largest in history. IEA projects a rebound in oil demand by a record 5.7 million barrels per day in 2021.
The IEA said oil demand in the second quarter, which saw the maximum impact from lockdown measures, was 17.8 million barrels per day lower from the year-ago level. Notably, Beijing is canceling flights and closing schools, and several U.S. states, including Texas, Florida and California, are seeing sharp increases in new cases.
So far, output cut initiatives in the form of the OPEC+ agreement and the meeting of G20 energy ministers has supported oil prices, per IEA. In fact, oil prices jumped on Jun 18 (despite rising coronavirus cases) as OPEC and its allies met to review record oil supply cuts.
The Organization of the Petroleum Exporting Countries and allies, known as OPEC+, have been cutting output by a record 9.7 million barrels per day (bpd) or 10% of global supply since May 1.
Against this backdrop, below we highlight a few oil and energy ETFs that could be tapped now for future gains. If we go by the IEA’s projections, the energy patch is likely to see a surge in the coming year. So, investors with a strong stomach for risks may see the latest depressed price level as a lucrative buying opportunity. Below we highlight a few energy ETFs that can be bought now (read: Why Oil Recovery Appears On the Edge? ETFs in Focus).
VanEck Vectors Oil Services ETF (OIH - Free Report)
The underlying MVIS U.S. Listed Oil Services 25 Index tracks the overall performance of U.S.-listed companies involved in oil services to the upstream oil sector, which include oil equipment, oil services, or oil drilling. The Zacks Rank #3 fund charges 35 bps in fees.
Energy Select Sector SPDR ETF(XLE - Free Report)
The underlying Energy Select Sector Index includes companies from the following industries: oil, gas & consumable fuels and energy equipment & services. The Zacks Rank #3 fund charges 13 bps in fees.
iShares U.S. Oil Equipment Services ETF (IEZ - Free Report)
The underlying Dow Jones US Select Oil Equip & Serv Ind is a free-float adjusted market capitalization-weighted index. It measures the performance of oil equipment & services sector of the U.S. equity market by including companies that are suppliers of equipment or services to oil fields & offshore platforms, such as drilling, exploration, engineering, logistics, seismic information services & platform construction. The Zacks Rank #3 fund charges 42 bps in fees.
SPDR SP Oil Gas Equipment Services ETF (XES - Free Report)
The underlying S&P Oil & Gas Equipment & Services Select Industry Index represents the oil and gas equipment and services sub-industry portion of the S&P Total Markets Index. The S&P TMI tracks all the U.S. common stocks listed on the NYSE, AMEX, NASDAQ National Market and NASDAQ Small Cap exchanges. The Oil & Gas Equipment Index is a modified equal-weight index. The Zacks Rank #3 fund charges 35 bps in fees.
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 >>