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5 Energy ETFs at the Forefront of Oil Rally With More Upside

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The energy sector has been shining lately on an oil price surge buoyed by a swift global economic recovery and reopening of economies that are spurring demand for energy despite concerns over tighter COVID-19 related restrictions across parts of Asia. Notably, Brent crude jumped to the highest since May 2019 while U.S. crude advanced to the highest level since June 2018 (read: Brent Tops $70 Again: ETFs Set to Win & Lose).

The start of the summer driving season in the United States, the world's top oil consumer, has bolstered optimism over energy demand. This is especially true as gasoline demand jumped 9.6% on May 30, above the average of the previous four Sundays. This was also the highest Sunday demand since summer 2019, according to GasBuddy data. Meanwhile, the U.S. Transportation Security Administration (TSA) reported 1,959,593 traveler throughput at American airports on May 28, the highest number since the pandemic started grounding flights last year in March.

Inventories are also declining with gasoline stockpiles hovering at the lowest level in almost three decades while crude stockpiles at Cushing, the WTI delivery hub, has fallen some 17% below the five-year average. The Organization of the Petroleum Exporting Countries (OPEC) expects stockpiles to decline by at least 2 million barrels a day from September through December.

The OPEC and its allies agreed at their latest meeting to continue easing production cuts gradually amid a rebound in oil prices. The cartel will boost output in July, in accordance with the group’s April decision to return 2.1 million barrels per day to the market between May and July. They expect the recovery in global demand to absorb the additional supply despite the prospect of more output from Iran, should a nuclear deal be revived, and concerns over tighter COVID-19 related restrictions across parts of Asia, most notably India.

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. 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.

While the energy ETF is leading the rally this year, we have highlighted five ETFs that are at the forefront of the oil surge over the past month:

Invesco S&P SmallCap Energy ETF (PSCE - Free Report) – Up 19%

This fund provides exposure to the U.S. small-cap segment of the energy sector by tracking the S&P Small Cap 600 Capped Energy Index. It holds 32 stocks in its basket with AUM of $159 million. The fund trades in an average daily volume of 749,000 shares and charges 29 bps in fees per year. It has a Zacks ETF Rank #3 (Hold) with a High risk outlook (read: 4 Sector ETFs That Gained Double Digits in a Volatile May).

First Trust ISE-Revere Natural Gas Index Fund (FCG - Free Report) – Up 16.7%

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 and holds 36 stocks in its basket. The fund has amassed $210.7 million in its asset base while charging 60 bps in annual fees. Volume is good with 1.2 million shares exchanged per day on average. The product has a Zacks ETF Rank #2 (Buy) with a High risk outlook.

SPDR S&P Oil & Gas Equipment & Services ETF (XES - Free Report) – Up 16.1%

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 26 stocks in its basket with AUM of $167.2 million. The ETF trades in an average daily volume of 112,000 shares a day and charges 35 bps in fees per year from investors. It has a Zacks ETF Rank #3 with a High risk outlook.

Invesco Dynamic Energy Exploration & Production ETF (PXE - Free Report) – Up 15.6%

This product follows the Dynamic Energy Exploration & Production Intellidex Index, which thoroughly evaluates companies involved in the exploration and production of natural resources used to produce energy based on a variety of investment merit criteria, including price momentum, earnings momentum, quality, management action and value. Holding 32 stocks in its basket, the fund has amassed $72.4 million in its asset base while trading in an average daily volume of 71,000 shares. It charges 63 bps in annual fees and has a Zacks ETF Rank #3 with a High risk outlook (read: 5 ETFs That Skyrocketed During Biden's 100 Days in Office).

VanEck Vectors Oil Services ETF (OIH - Free Report) – Up 15.5%

This fund 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. With AUM of $2.2 billion, it holds 25 stocks in its basket and charges 35 bps in annual fees. The product has a Zacks ETF Rank #3 with a High risk outlook.

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