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Energy Emerges the Best Sector of 2021: 5 ETFs Up At Least 70%

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Energy stocks are on the course of their best year in more than three decades, per a CNBC article. The group is still up more than 47% for the year. The S&P 500 is up nearly 28% this year. Crude prices are up about 60% this year as the demand outlook continues to improve with economic reopening.

First Trust Natural Gas ETF (FCG - Free Report) , Invesco Dynamic Energy Exploration & Production ETF (PXE - Free Report) , Invesco DWA Energy Momentum ETF (PXI - Free Report) , iShares U.S. Oil & Gas Exploration & Production ETF (IEO - Free Report) and SPDR S&P Oil & Gas Exploration & Production ETF (XOP - Free Report) have gained more than 70% this year.

What’s Behind the Rally?

The coronavirus vaccination and boosters are gradually helping control the spread and severity of the outbreak across the globe and this has boded well for the energy sector. The jump in oil prices came this year despite the rising virus cases in India – one of the key consumers of oil.

In mid-2021, the CNBC article noted that energy’s great start to the year gave signal that even if the sector goes nowhere for the rest of 2021, it will still be the best year since 1990 by nearly 10%, according to Bay Crest Partners chief market technician Jonathan Krinsky.

The forecast came correct as energy stood at the top of all sectors with only information technology giving it a tough competition. Technology Select Sector SPDR Fund (XLK - Free Report) is up 44% this year. Crude oil prices hit a seven-year high in early October thanks to energy supply concerns and persistent oil inventory drawdowns.

Though energy stocks wavered in the fourth quarter due to the outbreak of the highly infectious Omicron strain of COVID-19, the sector stayed afloat. The news that Omicron is less fatal than Delta version assured investors about no stringent and prolonged global lockdowns in the coming days. The Energy ETF (XLE - Free Report) has gained only 6% in the fourth quarter.

Apart from the easing concerns about the impact of the Omicron variant on global fuel demand, the fact that Iran nuclear talks hit a snag, deferring the return of Iranian crude supplies, boosted oil prices lately.

More Upside in Q1 of 2022?

Global oil demand is set to return to pre-pandemic levels by the end of 2022, rising 5.5 mb/d in 2021 and a further 3.3 mb/d next year. From September through end-2021, global output is set to increase 2.7 mb/d with OPEC+ accounting for 1.5 mb/d and non-OPEC+ contributing to the rest, per International Energy Agency (IEA).

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.

In a monthly report, OPEC said in mid-December it expects world oil demand to average 99.13 million barrels per day  in the first quarter of 2022, up 1.11 million bpd from its forecast last month. "Some of the recovery previously expected in the fourth quarter of 2021 has been shifted to the first quarter of 2022, followed by a steadier recovery throughout the second half of 2022," OPEC said in the report, as reported by Reuters.

Against this backdrop, below we highlight a few top-performing energy ETFs/ETNs of this year.

ETFs in Focus

First Trust Natural Gas ETF (FCG - Free Report) – Up 105.3%

The underlying ISE-Revere Natural Gas Index is an equal-weighted index comprised of exchange-listed companies that derive a substantial portion of their revenues from the exploration and production of natural gas. FCG charges 60 bps in fees.

Invesco Dynamic Energy Exploration & Production ETF (PXE - Free Report) – Up 99.3%

The underlying Dynamic Energy Exploration & Production Intellidex Index is composed of stocks of 30 U.S. companies involved in the exploration and production of natural resources used to produce energy. The ETF PXE charges 63 bps in fees.

Invesco DWA Energy Momentum ETF (PXI - Free Report) – Up 81.3%

The underlying Dorsey Wright Energy Technical Leaders Index identifies companies that are showing relative strength, and are composed of at least 30 common stocks from a universe of approximately 3,000 common stocks traded on US exchanges. The ETF PXE charges 60 bps in fees.

iShares U.S. Oil & Gas Exploration & Production ETF (IEO - Free Report) – Up 78.8%

The underlying Dow Jones U.S. Select Oil Exploration & Production Index is a free-float adjusted market capitalization-weighted index. The Index includes companies that are engaged in the exploration for and extraction, production, refining, and supply of oil and gas products. The ETF IEO charges 42 bps in fees.

SPDR S&P Oil & Gas Exploration & Production ETF (XOP - Free Report) – Up 72.7%

The underlying S&P Oil & Gas Exploration & Production Select Industry Index represents the oil and gas exploration and production sub-industry portion of the S&P Total Markets Index. The ETF XOP charges 35 bps in fees.