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Top-Ranked Energy ETFs to Ride the Rebound in Oil Prices
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Oil prices spiked last week, gaining 3% to near four-month high, buoyed by rising demand forecasts by the International Energy Agency (“IEA”), geopolitical tensions and domestic market dynamics. After peaking above $85 per barrel for the first time since November, Brent crude is trading near $85, while West Texas Intermediate is hovering around $81.
Investors should tap the growth potential in oil prices through ETFs having a Zacks Rank #1 (Strong Buy) or #2 (Buy). These include Energy Select Sector SPDR (XLE - Free Report) , VanEck Vectors Oil Services ETF (OIH - Free Report) , Invesco S&P SmallCap Energy ETF (PSCE - Free Report) , Invesco Dynamic Energy Exploration & Production ETF (PXE - Free Report) and Invesco Oil & Gas Services ETF (PXJ - Free Report) .
Several key developments have contributed to the solid trends in crude oil prices:
IEA Demand Forecast: The IEA revised its 2024 oil demand outlook upward for the fourth time since November, citing disruptions in Red Sea shipping due to Houthi attacks. The forecast now indicates an increase in global demand by 110,000 barrels per day (bpd), totaling 1.3 million bpd.
US Drilling Activity: According to a Reuters report citing energy service firm Baker Hughes, the United States saw a significant addition of oil and natural gas rigs, marking the largest weekly increase since September. This rise brought the oil rig count to its highest in six months, signaling growth in future output.
Economic Factors and the US Dollar: The strengthening of the U.S. dollar, making crude more expensive for holders of other currencies, did not deter the upward trend in oil prices. Despite the fastest strengthening of the dollar in eight weeks, market dynamics, such as the potential for lower interest rates in the United States, indicated room for demand growth. However, mixed signals from the U.S. economy, including a larger-than-expected increase in producer prices, suggested that the Fed might not cut interest rates before June this year (read: Dividend ETFs to Consider Amid Hot Inflation Data).
Stockpile and Inventory Movements: Unexpected declines in US crude oil stockpiles, coupled with increased refinery processing and a drop in gasoline inventories amid rising demand, were reported by the Energy Information Administration. Such trends underline a robust demand for oil, further buoying prices.
Geopolitical Tensions: Escalating conflicts, particularly Ukrainian drone strikes on Russian oil refineries, have exerted pressure on global oil supply dynamics. These attacks, which resulted in significant damage to Russia's refining capacity, highlight the ongoing geopolitical risks that influence oil markets.
Energy Select Sector SPDR is the largest and the most popular ETF in the energy space, with an AUM of $37.2 billion and an average daily volume of 16 million shares per day. It offers exposure to the broad energy space and follows the Energy Select Sector Index. Energy Select Sector SPDR holds 23 securities in its basket, with a higher concentration on the top two firms.
Energy Select Sector SPDR charges 9 bps in annual fees and has a Zacks ETF Rank #1, with a High risk outlook.
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 26 stocks in its basket, with double-digit concentration on the top three firms.
With an AUM of $2.1 billion, VanEck Vectors Oil Services ETF charges 35 bps in annual fees. The product trades in an average daily volume of 414,000 shares and has a Zacks ETF Rank #2, with a High risk outlook.
Invesco S&P SmallCap Energy ETF offers exposure to companies that are principally engaged in producing, distributing or servicing energy-related products, including oil and gas exploration, and production, refining, oil services and pipelines. It tracks the S&P Small Cap 600 Capped Energy Index, holding 31 stocks in its basket with a modest concentration across firms.
Invesco S&P SmallCap Energy ETF has accumulated $230.4 million in its asset base and charges 29 bps in annual fees. It trades in an average daily volume of 19,000 shares and has a Zacks ETF Rank #2, with a High risk outlook.
Invesco Dynamic Energy Exploration & Production ETF (PXE - Free Report)
Invesco Dynamic Energy Exploration & Production ETF 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, Invesco Dynamic Energy Exploration & Production ETF has amassed $139 million in its asset base and charges 60 bps in annual fees. It trades in a volume of 33,000 shares and has a Zacks ETF Rank #2, with a High risk outlook (read: Time for Oil & Energy ETFs?).
Invesco 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 32 stocks in its basket.
Invesco Oil & Gas Services ETF has accumulated $87.2 million and charges 63 bps in fees per year. It trades in an average daily volume of 34,000 shares and has a Zacks ETF Rank #2, with a High risk outlook.
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Top-Ranked Energy ETFs to Ride the Rebound in Oil Prices
Oil prices spiked last week, gaining 3% to near four-month high, buoyed by rising demand forecasts by the International Energy Agency (“IEA”), geopolitical tensions and domestic market dynamics. After peaking above $85 per barrel for the first time since November, Brent crude is trading near $85, while West Texas Intermediate is hovering around $81.
Investors should tap the growth potential in oil prices through ETFs having a Zacks Rank #1 (Strong Buy) or #2 (Buy). These include Energy Select Sector SPDR (XLE - Free Report) , VanEck Vectors Oil Services ETF (OIH - Free Report) , Invesco S&P SmallCap Energy ETF (PSCE - Free Report) , Invesco Dynamic Energy Exploration & Production ETF (PXE - Free Report) and Invesco Oil & Gas Services ETF (PXJ - Free Report) .
Several key developments have contributed to the solid trends in crude oil prices:
IEA Demand Forecast: The IEA revised its 2024 oil demand outlook upward for the fourth time since November, citing disruptions in Red Sea shipping due to Houthi attacks. The forecast now indicates an increase in global demand by 110,000 barrels per day (bpd), totaling 1.3 million bpd.
US Drilling Activity: According to a Reuters report citing energy service firm Baker Hughes, the United States saw a significant addition of oil and natural gas rigs, marking the largest weekly increase since September. This rise brought the oil rig count to its highest in six months, signaling growth in future output.
Economic Factors and the US Dollar: The strengthening of the U.S. dollar, making crude more expensive for holders of other currencies, did not deter the upward trend in oil prices. Despite the fastest strengthening of the dollar in eight weeks, market dynamics, such as the potential for lower interest rates in the United States, indicated room for demand growth. However, mixed signals from the U.S. economy, including a larger-than-expected increase in producer prices, suggested that the Fed might not cut interest rates before June this year (read: Dividend ETFs to Consider Amid Hot Inflation Data).
Stockpile and Inventory Movements: Unexpected declines in US crude oil stockpiles, coupled with increased refinery processing and a drop in gasoline inventories amid rising demand, were reported by the Energy Information Administration. Such trends underline a robust demand for oil, further buoying prices.
Geopolitical Tensions: Escalating conflicts, particularly Ukrainian drone strikes on Russian oil refineries, have exerted pressure on global oil supply dynamics. These attacks, which resulted in significant damage to Russia's refining capacity, highlight the ongoing geopolitical risks that influence oil markets.
Here, we have profiled the above-mentioned ETFs:
Energy Select Sector SPDR (XLE - Free Report)
Energy Select Sector SPDR is the largest and the most popular ETF in the energy space, with an AUM of $37.2 billion and an average daily volume of 16 million shares per day. It offers exposure to the broad energy space and follows the Energy Select Sector Index. Energy Select Sector SPDR holds 23 securities in its basket, with a higher concentration on the top two firms.
Energy Select Sector SPDR charges 9 bps in annual fees and has a Zacks ETF Rank #1, 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 26 stocks in its basket, with double-digit concentration on the top three firms.
With an AUM of $2.1 billion, VanEck Vectors Oil Services ETF charges 35 bps in annual fees. The product trades in an average daily volume of 414,000 shares and has a Zacks ETF Rank #2, with a High risk outlook.
Invesco S&P SmallCap Energy ETF (PSCE - Free Report)
Invesco S&P SmallCap Energy ETF offers exposure to companies that are principally engaged in producing, distributing or servicing energy-related products, including oil and gas exploration, and production, refining, oil services and pipelines. It tracks the S&P Small Cap 600 Capped Energy Index, holding 31 stocks in its basket with a modest concentration across firms.
Invesco S&P SmallCap Energy ETF has accumulated $230.4 million in its asset base and charges 29 bps in annual fees. It trades in an average daily volume of 19,000 shares and has a Zacks ETF Rank #2, with a High risk outlook.
Invesco Dynamic Energy Exploration & Production ETF (PXE - Free Report)
Invesco Dynamic Energy Exploration & Production ETF 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, Invesco Dynamic Energy Exploration & Production ETF has amassed $139 million in its asset base and charges 60 bps in annual fees. It trades in a volume of 33,000 shares and has a Zacks ETF Rank #2, with a High risk outlook (read: Time for Oil & Energy ETFs?).
Invesco Oil & Gas Services ETF (PXJ - Free Report)
Invesco 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 32 stocks in its basket.
Invesco Oil & Gas Services ETF has accumulated $87.2 million and charges 63 bps in fees per year. It trades in an average daily volume of 34,000 shares and has a Zacks ETF Rank #2, with a High risk outlook.