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Oil prices climbed after four consecutive weeks of decline, bolstered by the United States' plans to acquire crude for its Strategic Petroleum Reserve (SPR) and the Alberta wildfires, which sparked concerns over supply disruptions.
Despite the release of lower-than-anticipated Chinese economic data, indicating a sluggish economy, oil prices remained unaffected. Market sentiment was instead influenced by the focus on increased refinery throughput in China, the second-largest oil consumer globally.
According to an article on Reuters, the surge in prices was fueled by concerns over escalating wildfires in Alberta, Canada, which have resulted in significant shutdowns of crude supply. Fears of the wildfires intensifying contributed to the price uptick. Last week alone, approximately 300,000 barrels of oil equivalent per day (boepd) production was halted in Alberta. Benchmarks of Brent Crude Futures and U.S. West Texas Intermediate crude rose after witnessing the longest streak of weekly decline since last September.
Given this, investors should take a look into a few ETFs that can be intriguing bets in the energy market. These include First Trust Energy AlphaDEX Fund (FXN - Free Report) ), SPDR S&P Oil & Gas Exploration & Production ETF (XOP - Free Report) ), Vanguard Energy ETF (VDE - Free Report) ), Energy Select Sector SPDR Fund (XLE - Free Report) and Invesco Dynamic Oil & Gas Services ETF (PXJ - Free Report) .
How is OPEC+ Affecting the Market?
The additional output cut announced by the Organization of the Petroleum Exporting Countries and its allies including Russia (OPEC+), in April could result in the tightening of global crude supplies in the latter half of the year.
Per Reuters, in its recent report, OPEC maintained its global oil demand forecast for 2023, for the third consecutive month. The oil cartel expressed that while there is potential for Chinese growth, it could be counteracted by downside economic risks in other regions, such as the U.S. debt ceiling.
OPEC's report forecasts a 2.33 million barrels per day (bpd) increase in global oil demand for 2023, similar to the previous month's estimate. Additionally, the report highlights a decline in OPEC's oil production in April, attributed to output cuts implemented by OPEC+ and some unplanned outages.
U.S. Oil Rig and Strategic Petroleum Reserve Scenario
The completion of a congressionally mandated sale of 26 million barrels from the SPR by June will prompt the United States to consider repurchasing oil for the reserve.
The announcement coincided with a weekly report from energy services firm Baker Hughes Co. (BKR - Free Report) , indicating a decrease in the number of U.S. oil rigs to 586, the lowest since June 2022, and a significant drop in the number of gas rigs to 141. This rig count serves as an early indicator of future oil and gas output.
The First Trust Energy AlphaDEX ETF seeks investment results that generally correspond to the price and yield of the StrataQuant Energy Index. The fund has 40 securities in its basket with major allocations in Chesapeake Energy (CHK - Free Report) , Coterra Energy CTRA and Southwestern Energy (SWN - Free Report) having share of 4.62%, 4.45% and 4.40%, respectively.
With an asset base of $605.03 million, the fund charges an annual fee of 0.61%. It has a Zacks ETF Rank #4 (Sell) with a High risk outlook. First Trust Energy AlphaDEX ETF has lost 0.82% in the past year and 13.74% in the past three months.
SPDR S&P Oil & Gas Exploration & Production ETF (XOP - Free Report)
SPDR S&P Oil & Gas Exploration & Production ETF seeks to replicate the total return performance of the S&P Oil & Gas Exploration & Production Select Industry Index. The fund has a basket of 59 securities. Oil & gas exploration and production has a 75.19% share of the fund with major allocations in EQT (EQT - Free Report) and Pioneer Natural Resources (PXD - Free Report) with 2.61% and 2.59% of the fund, respectively.
Having gathered an asset base of $3.16 billion, the fund charges an annual fee of 0.35%. The SPDR S&P Oil & Gas Exploration & Production ETF has a Zacks ETF Rank #4 with a High risk outlook. The fund has fallen 4.39% over the past year and has lost 14.79% in the past three-months.
Vanguard Energy ETF employs an indexing investment approach designed to track the performance of the MSCI US Investable Market Index (IMI)/Energy 25/50, which is made up of stocks of large, mid-size, and small U.S. companies within the energy sector. The fund has a basket of 112 securities, and major allocations in Exxon Mobil (XOM - Free Report) and Chevron (CVX) with 23.85% and 16.33%, respectively.
The fund has amassed an asset base of $7.30 billion and charges an annual fee of 0.10%. It has a Zacks ETF Rank #3 (Hold) with a High risk outlook. Vanguard Energy ETF has generated returns of 4.89% over the past year but has fallen 12.64% in the past three months.
Energy Select Sector SPDR ETF seeks to closely match the returns and characteristics of the Energy Select Sector Index. The fund has a basket of 23 securities and major allocations in Exxon Mobil and Chevron, with 23.49% and 19.82% share, respectively.
Having gathered an asset base of $35.26 billion, the fund charges an annual fee of 0.10%. It has a Zacks ETF Rank #2 (Buy) with a High risk outlook. Energy Select Sector SPDR ETF has lost 12.07% in the past three months but has gained 4.82% over the past year.
Invesco Dynamic Oil & Gas Services ETF is based on the Dynamic Oil Services Intellidex Index, which is composed of stocks of 30 U.S. companies that assist in the production, processing and distribution of oil and gas. It has a basket of 32 securities with allocations in TechnipFMC (FTI - Free Report) and Baker Hughes with 6.1% and 5.47%, respectively.
The fund has an asset base of $45.12 million and charges an annual fee of 0.63%. It has a Zacks ETF Rank #2 with a High risk outlook. Invesco Dynamic Oil & Gas Services ETF has generated returns of 12.66% over the past year but has lost 20.46% in the past three months.
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ETFs in Focus as Oil Prices Rise
Oil prices climbed after four consecutive weeks of decline, bolstered by the United States' plans to acquire crude for its Strategic Petroleum Reserve (SPR) and the Alberta wildfires, which sparked concerns over supply disruptions.
Despite the release of lower-than-anticipated Chinese economic data, indicating a sluggish economy, oil prices remained unaffected. Market sentiment was instead influenced by the focus on increased refinery throughput in China, the second-largest oil consumer globally.
According to an article on Reuters, the surge in prices was fueled by concerns over escalating wildfires in Alberta, Canada, which have resulted in significant shutdowns of crude supply. Fears of the wildfires intensifying contributed to the price uptick. Last week alone, approximately 300,000 barrels of oil equivalent per day (boepd) production was halted in Alberta. Benchmarks of Brent Crude Futures and U.S. West Texas Intermediate crude rose after witnessing the longest streak of weekly decline since last September.
Given this, investors should take a look into a few ETFs that can be intriguing bets in the energy market. These include First Trust Energy AlphaDEX Fund (FXN - Free Report) ), SPDR S&P Oil & Gas Exploration & Production ETF (XOP - Free Report) ), Vanguard Energy ETF (VDE - Free Report) ), Energy Select Sector SPDR Fund (XLE - Free Report) and Invesco Dynamic Oil & Gas Services ETF (PXJ - Free Report) .
How is OPEC+ Affecting the Market?
The additional output cut announced by the Organization of the Petroleum Exporting Countries and its allies including Russia (OPEC+), in April could result in the tightening of global crude supplies in the latter half of the year.
Per Reuters, in its recent report, OPEC maintained its global oil demand forecast for 2023, for the third consecutive month. The oil cartel expressed that while there is potential for Chinese growth, it could be counteracted by downside economic risks in other regions, such as the U.S. debt ceiling.
OPEC's report forecasts a 2.33 million barrels per day (bpd) increase in global oil demand for 2023, similar to the previous month's estimate. Additionally, the report highlights a decline in OPEC's oil production in April, attributed to output cuts implemented by OPEC+ and some unplanned outages.
U.S. Oil Rig and Strategic Petroleum Reserve Scenario
The completion of a congressionally mandated sale of 26 million barrels from the SPR by June will prompt the United States to consider repurchasing oil for the reserve.
The announcement coincided with a weekly report from energy services firm Baker Hughes Co. (BKR - Free Report) , indicating a decrease in the number of U.S. oil rigs to 586, the lowest since June 2022, and a significant drop in the number of gas rigs to 141. This rig count serves as an early indicator of future oil and gas output.
ETFs in Focus
Below, we highlight some popular energy ETFs.
First Trust Energy AlphaDEX Fund (FXN - Free Report)
The First Trust Energy AlphaDEX ETF seeks investment results that generally correspond to the price and yield of the StrataQuant Energy Index. The fund has 40 securities in its basket with major allocations in Chesapeake Energy (CHK - Free Report) , Coterra Energy CTRA and Southwestern Energy (SWN - Free Report) having share of 4.62%, 4.45% and 4.40%, respectively.
With an asset base of $605.03 million, the fund charges an annual fee of 0.61%. It has a Zacks ETF Rank #4 (Sell) with a High risk outlook. First Trust Energy AlphaDEX ETF has lost 0.82% in the past year and 13.74% in the past three months.
SPDR S&P Oil & Gas Exploration & Production ETF (XOP - Free Report)
SPDR S&P Oil & Gas Exploration & Production ETF seeks to replicate the total return performance of the S&P Oil & Gas Exploration & Production Select Industry Index. The fund has a basket of 59 securities. Oil & gas exploration and production has a 75.19% share of the fund with major allocations in EQT (EQT - Free Report) and Pioneer Natural Resources (PXD - Free Report) with 2.61% and 2.59% of the fund, respectively.
Having gathered an asset base of $3.16 billion, the fund charges an annual fee of 0.35%. The SPDR S&P Oil & Gas Exploration & Production ETF has a Zacks ETF Rank #4 with a High risk outlook. The fund has fallen 4.39% over the past year and has lost 14.79% in the past three-months.
Vanguard Energy ETF (VDE - Free Report)
Vanguard Energy ETF employs an indexing investment approach designed to track the performance of the MSCI US Investable Market Index (IMI)/Energy 25/50, which is made up of stocks of large, mid-size, and small U.S. companies within the energy sector. The fund has a basket of 112 securities, and major allocations in Exxon Mobil (XOM - Free Report) and Chevron (CVX) with 23.85% and 16.33%, respectively.
The fund has amassed an asset base of $7.30 billion and charges an annual fee of 0.10%. It has a Zacks ETF Rank #3 (Hold) with a High risk outlook. Vanguard Energy ETF has generated returns of 4.89% over the past year but has fallen 12.64% in the past three months.
Energy Select Sector SPDR Fund (XLE - Free Report)
Energy Select Sector SPDR ETF seeks to closely match the returns and characteristics of the Energy Select Sector Index. The fund has a basket of 23 securities and major allocations in Exxon Mobil and Chevron, with 23.49% and 19.82% share, respectively.
Having gathered an asset base of $35.26 billion, the fund charges an annual fee of 0.10%. It has a Zacks ETF Rank #2 (Buy) with a High risk outlook. Energy Select Sector SPDR ETF has lost 12.07% in the past three months but has gained 4.82% over the past year.
Invesco Dynamic Oil & Gas Services ETF (PXJ - Free Report)
Invesco Dynamic Oil & Gas Services ETF is based on the Dynamic Oil Services Intellidex Index, which is composed of stocks of 30 U.S. companies that assist in the production, processing and distribution of oil and gas. It has a basket of 32 securities with allocations in TechnipFMC (FTI - Free Report) and Baker Hughes with 6.1% and 5.47%, respectively.
The fund has an asset base of $45.12 million and charges an annual fee of 0.63%. It has a Zacks ETF Rank #2 with a High risk outlook. Invesco Dynamic Oil & Gas Services ETF has generated returns of 12.66% over the past year but has lost 20.46% in the past three months.