Back to top

Image: Bigstock

Energy ETFs Rally on Hopes of OPEC Output Cuts

Read MoreHide Full Article

The energy sector rallied during the Aug 23 trading session, driven by a rise in oil price on hopes of OPEC output cuts and a drop in inventory. As such, many ETFs from the sector also rose, with iShares U.S. Oil Equipment & Services ETF (IEZ - Free Report) stealing the show, climbing 5.1%.

This was followed by gains of 5% for VanEck Vectors Oil Services ETF (OIH - Free Report) , 4.2% for SPDR S&P Oil & Gas Equipment & Services ETF (XES - Free Report) , 3.8% for Invesco Dynamic Oil & Gas Services ETF (PXJ - Free Report) and 3.6% for Energy Select Sector SPDR (XLE - Free Report) .

Saudi Arabia floated the possibility of an imminent output cut by the Organization of the Petroleum Exporting Countries and allies to balance the energy market in case of returning Iranian crude should Iran clinch a nuclear deal with the West. OPEC+ is already producing 2.9 million barrels per day less than its target, per the sources. Additionally, global oil supply could take a hit as the peak U.S. hurricane season approaches.  

A positive inventory report from American Petroleum Institute added to the strength. The data showed a large inventory draw of 5.632 million barrels for the week ended Aug 19. With this, U.S. crude inventories have shed some 67 million barrels since the start of 2021 (read: More Pain Ahead for Energy ETFs?).

Further, the oil futures market is still in a state of backwardation, 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 for the near term, acting as the biggest catalyst for the commodity.

We profiled the above-mentioned ETFs below:

iShares U.S. Oil Equipment & Services ETF (IEZ - Free Report)

iShares U.S. Oil Equipment & Services ETF offers exposure to U.S. companies that provide equipment and services for oil exploration and extraction. It follows the Dow Jones U.S. Select Oil Equipment & Services Index, holding 25 stocks in its basket.

iShares U.S. Oil Equipment & Services ETF has amassed $177.7 million in its asset base while charging 39 bps in fees per year from investors. It has a Zacks ETF Rank #2 (Buy) with a High risk outlook.

VanEck Vectors Oil Services ETF (OIH - Free Report)

VanEck Vectors Oil Services ETF 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. It holds 25 stocks in its basket.

With AUM of $2.3 billion, VanEck Vectors Oil Services ETF charges 35 bps in annual fees. The product has a Zacks ETF Rank #2 with a High risk outlook.

SPDR S&P Oil & Gas Equipment & Services ETF (XES - Free Report)

SPDR S&P Oil & Gas Equipment & Services ETF 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 31 stocks in its basket with AUM of $257.4 million (read: Best-Performing ETF Areas of Last Week).

SPDR S&P Oil & Gas Equipment & Services ETF charges 35 bps in fees per year from investors and has a Zacks ETF Rank #2 with a High risk outlook.

Invesco Dynamic Oil & Gas Services ETF (PXJ - Free Report)

Invesco Dynamic Oil & Gas Services ETF 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 27 stocks in its basket.

Invesco Dynamic Oil & Gas Services ETF has accumulated $31.8 million and charges 63 bps in fees per year. It has a Zacks ETF Rank #2 with a High risk outlook.

Energy Select Sector SPDR (XLE - Free Report)

Energy Select Sector SPDR is the largest and the most-popular ETF in the energy space, with AUM of $37.2 billion. It offers exposure to the broad energy space and follows the Energy Select Sector Index. Energy Select Sector SPDR holds 21 securities in its basket, with heavy concentration on the top two firms (read: Energy ETFs to Dig on Record Q2 Earnings From Exxon, Chevron).

Energy Select Sector SPDR charges 10 bps in annual fees and has a Zacks ETF Rank #1 (Strong Buy) with a High risk outlook.

Published in