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The coronavirus vaccine rollout is gradually helping control the spread of the outbreak across the globe. Accordingly, the global demand and economic growth levels are on the path of recovery from the pandemic-led slump. The optimism surrounding the gradual reopening of global economies and increasing demand is painting a rosy picture for cyclical sectors.
Consequently, the energy sector has been gaining investors’ attention on the latest rally in oil prices due to growing fuel consumption despite worries looming around pandemic-related restrictions across parts of Asia. According to the International Energy Agency (IEA), the global fuel demand may rebound to the pre-pandemic levels in a year, per a Bloomberg article.
Notably, oil prices have risen about 40% this year amid improving economic conditions globally. In fact, oil prices had hit $70 a barrel in New York for the first time since October 2018, per a BloombergQuint article. It is worth noting here that the pandemic seems to be gradually coming under control in the United States, China and some parts of Europe amid an accelerated coronavirus vaccination drive.
According to data from Johns Hopkins University, the daily average of new cases declined to roughly 17,248, as of May 31 (per a CNN report). The decline in the number of coronavirus cases has increased optimism among market participants toward faster recovering and reopening of the U.S. economy.
Moving on, the Organization of the Petroleum Exporting Countries and its production allies, together known as OPEC+, has added to the optimism in oil demand. It expects demand to rise on global economic recovery. Accordingly, the group has decided to raise production by 841,000 barrels per day (bpd) in July after increases in May and June, per a Bloomberg article. Resultantly, oil prices saw continued gains and rose to the highest level since October 2018.
Notably, OPEC+ continues to project a 6-million-bpd rise in oil demand in 2021, per a Reuters article. The figure is equal to 6% of global consumption amid the economic recovery from the pandemic. It is important to note that OPEC+ had curbed oil production by a record of 9.7 million bpd last year amid the aggravating pandemic conditions waning oil demand, according to a CNBC article. Later, the cuts were revised to 7.7 million and finally 7.2 million from January 2021.
Meanwhile, OPEC+ decided in April to bring back 2.1 million bpd of supply to the market during May through July considering an improving demand outlook, per a Reuters article. The group’s production cuts are expected to come in at about 5.8 million by July, per the same CNBC article.
Going on, the prospects of a rapid return of Iranian barrels to the market have decreased. Iran is holding talks with Western powers to restore its 2015 nuclear deal, per a CNBC article. If successful, this can lead to increased oil supplies in global markets. In fact, Iran is expected to increase production and exports by between 1.0 and 1.5 million bpd on complete easing of sanctions, according to a Reuters article.
Furthermore, strengthening optimism is the decline in inventory. U.S. crude inventories fell by 5.1 million barrels in the week ended May 28 compared with expectations of a decrease of 2.4 million barrels, per the verified sources.
Energy ETFs to Watch Out For
Against the bullish backdrop of the energy sector, let’s take a look at some energy ETFs that are worth adding to portfolio for boosting returns:
Invesco Dynamic Energy Exploration & Production ETF (PXE - Free Report) — up 81% year to date
The fund seeks to track the performance of the Dynamic Energy Exploration & Production Intellidex Index. With AUM of $82.1 million, the fund has an expense ratio of 63 basis points (bps) (read: 5 Energy ETFs at the Forefront of Oil Rally With More Upside).
Fidelity MSCI Energy Index ETF (FENY - Free Report) — up 50.7%
The fund seeks to provide investment returns that correspond, before fees and expenses, generally to the performance of the MSCI USA IMI Energy Index. It has AUM of $996.3 million and charges a fee of 0.08%.
The Energy Select Sector SPDR Fund (XLE - Free Report) — up 48.0%
The fund seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the Energy Select Sector Index. With AUM of $26.20 billion, the fund has an expense ratio of 0.12% (read: 5 Sector ETFs Hitting New Highs Amid Market Volatility).
The fund seeks investment results that correspond generally to the price and yield performance of the Dow Jones U.S. Oil & Gas Index. It has AUM of $2.60 billion and charges a fee of 0.42% (read: 5 ETF Strategies to Follow Warren Buffett's Vision).
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Here's Why You Should Bet on Energy ETFs Now
The coronavirus vaccine rollout is gradually helping control the spread of the outbreak across the globe. Accordingly, the global demand and economic growth levels are on the path of recovery from the pandemic-led slump. The optimism surrounding the gradual reopening of global economies and increasing demand is painting a rosy picture for cyclical sectors.
Consequently, the energy sector has been gaining investors’ attention on the latest rally in oil prices due to growing fuel consumption despite worries looming around pandemic-related restrictions across parts of Asia. According to the International Energy Agency (IEA), the global fuel demand may rebound to the pre-pandemic levels in a year, per a Bloomberg article.
Notably, oil prices have risen about 40% this year amid improving economic conditions globally. In fact, oil prices had hit $70 a barrel in New York for the first time since October 2018, per a BloombergQuint article. It is worth noting here that the pandemic seems to be gradually coming under control in the United States, China and some parts of Europe amid an accelerated coronavirus vaccination drive.
According to data from Johns Hopkins University, the daily average of new cases declined to roughly 17,248, as of May 31 (per a CNN report). The decline in the number of coronavirus cases has increased optimism among market participants toward faster recovering and reopening of the U.S. economy.
Moving on, the Organization of the Petroleum Exporting Countries and its production allies, together known as OPEC+, has added to the optimism in oil demand. It expects demand to rise on global economic recovery. Accordingly, the group has decided to raise production by 841,000 barrels per day (bpd) in July after increases in May and June, per a Bloomberg article. Resultantly, oil prices saw continued gains and rose to the highest level since October 2018.
Notably, OPEC+ continues to project a 6-million-bpd rise in oil demand in 2021, per a Reuters article. The figure is equal to 6% of global consumption amid the economic recovery from the pandemic. It is important to note that OPEC+ had curbed oil production by a record of 9.7 million bpd last year amid the aggravating pandemic conditions waning oil demand, according to a CNBC article. Later, the cuts were revised to 7.7 million and finally 7.2 million from January 2021.
Meanwhile, OPEC+ decided in April to bring back 2.1 million bpd of supply to the market during May through July considering an improving demand outlook, per a Reuters article. The group’s production cuts are expected to come in at about 5.8 million by July, per the same CNBC article.
Going on, the prospects of a rapid return of Iranian barrels to the market have decreased. Iran is holding talks with Western powers to restore its 2015 nuclear deal, per a CNBC article. If successful, this can lead to increased oil supplies in global markets. In fact, Iran is expected to increase production and exports by between 1.0 and 1.5 million bpd on complete easing of sanctions, according to a Reuters article.
Furthermore, strengthening optimism is the decline in inventory. U.S. crude inventories fell by 5.1 million barrels in the week ended May 28 compared with expectations of a decrease of 2.4 million barrels, per the verified sources.
Energy ETFs to Watch Out For
Against the bullish backdrop of the energy sector, let’s take a look at some energy ETFs that are worth adding to portfolio for boosting returns:
Invesco Dynamic Energy Exploration & Production ETF (PXE - Free Report) — up 81% year to date
The fund seeks to track the performance of the Dynamic Energy Exploration & Production Intellidex Index. With AUM of $82.1 million, the fund has an expense ratio of 63 basis points (bps) (read: 5 Energy ETFs at the Forefront of Oil Rally With More Upside).
Vanguard Energy ETF (VDE - Free Report) — up 51.5%
The fund seeks to track the performance of the MSCI US Investable Market Energy 25/50 Index. With AUM of $5.45 billion, the fund charges 10 bps in fees (read: Exxon, Chevron Turns to Profit in Q1: Energy ETFs in Focus).
Fidelity MSCI Energy Index ETF (FENY - Free Report) — up 50.7%
The fund seeks to provide investment returns that correspond, before fees and expenses, generally to the performance of the MSCI USA IMI Energy Index. It has AUM of $996.3 million and charges a fee of 0.08%.
The Energy Select Sector SPDR Fund (XLE - Free Report) — up 48.0%
The fund seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the Energy Select Sector Index. With AUM of $26.20 billion, the fund has an expense ratio of 0.12% (read: 5 Sector ETFs Hitting New Highs Amid Market Volatility).
iShares U.S. Energy ETF (IYE - Free Report) — up 47.6%
The fund seeks investment results that correspond generally to the price and yield performance of the Dow Jones U.S. Oil & Gas Index. It has AUM of $2.60 billion and charges a fee of 0.42% (read: 5 ETF Strategies to Follow Warren Buffett's Vision).
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 >>