Oil returned to a solid run in the past couple of months buoyed by improving supply/demand dynamics. Notably, oil prices have been hovering around their two-year highs with U.S. crude at over $57 per barrel and Brent oil at over $64 per barrel.
The surge was driven by signs of tighter oil markets and high hopes of further extension of the production cut deal until the end of the next year. The historic output cut deal wherein OPEC, Russia and other producers agreed to curb production by 1.8 million barrels per day until next March, is paying off with the global oil market on its way toward balancing. Also, accelerating global economic growth since the financial crisis, with consumption boom in both developed and emerging markets, has raised the appeal for the commodity. Additionally, Saudi Arabia’s crackdown on dozens of princes and business tycoons over the weekend raised concerns about stability and policymaking in the world’s largest crude exporter thereby pushing oil prices higher. Further, a weak dollar as well as escalating tensions in the Middle East is adding to the strength (read: Oil & Gas ETF Industry Outlook). Moreover, after three long years, the oil market has been in a state of backwardation, where later-dated contracts are cheaper than near-term contracts, for months. 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 in the near term, which is the biggest bullish catalyst for the commodity. Given the bullish outlook, we have presented five ETFs & stocks that have easily crushed the energy sector in the past month and are likely to continue their strong performance if oil prices remain above $50 per barrel: Best ETFs These energy ETFs currently have a Zacks ETF Rank #4 (Sell) or 5 (Strong Sell) but seem to be excellent choices to play the trend at least in the near term. SPDR S&P Oil & Gas Exploration & Production ETF XOP This fund offers exposure to the oil and gas exploration and production segment of the broad energy sector by tracking the S&P Oil & Gas Exploration & Production Select Industry Index (read: Can ETF Goblins of October Turn into Angels in November?). Zacks Rank: #4 AUM: $2.3 billion Expense Ratio: 0.35% One-Month Return: 7.2% VanEck Vectors Unconventional Oil & Gas ETF FRAK This fund follows the MVIS Global Unconventional Oil & Gas Index, which offers exposure to the companies involved in the exploration, development, extraction, and/or production of unconventional oil and natural gas. Zacks Rank: #5 AUM: $72.6 million Expense Ratio: 0.54% One-Month Return: 7.1% PowerShares Dynamic Energy Exploration & Production Portfolio PXE This product follows the Dynamic Energy Exploration & Production Intellidex Index, which thoroughly evaluates companies based on a variety of investment merit criteria, including price momentum, earnings momentum, quality, management action and value. Zacks Rank: #4 AUM: $50.6 million Expense Ratio: 0.80% One-Month Return: 7.1% iShares U.S. Oil & Gas Exploration & Production ETF IEO This ETF offers exposure to U.S. companies that are engaged in the exploration, production, and distribution of oil and gas by tracking the Dow Jones U.S. Select Oil Exploration & Production Index. Zacks Rank: #4 AUM: $417 million Expense Ratio: 0.44% One-Month Return: 6.8% PowerShares DWA Energy Momentum Portfolio PXI This fund tracks the Dorsey Wright Energy Technical Leaders Index, which is designed to identify companies that are showing relative strength (momentum) (read: Energy ETFs Gain on Exxon and Chevron Q3 Beat). Zacks Rank: #4 AUM: $92.6 million Expense Ratio: 0.60% One-Month Return: 6.1% Best Stocks We have highlighted the best-performing stocks that currently sport a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). Bill Barrett Corporation BBG Based in Denver, CO, Bill Barrett is an independent energy company engaged in acquiring, exploring, and developing oil and natural gas resources in the United States. Zacks Rank: #2 VGM Style Score: A Market Cap: $513.39 million One-Month Return: 54.4% CVR Refining LP CVRR Based in Sugar Land, TX, CVR Refining is engaged in the refining of petroleum primarily in the United States. Zacks Rank: #2 VGM Style Score: A Market Cap: $1.85 billion One-Month Return: 26.3% Mammoth Energy Services Inc. TUSK Based in Oklahoma City, OK, Mammoth Energy is an integrated oilfield service company. Zacks Rank: #2 VGM Style Score: D Market Cap: $853.1 million One-Month Return: 20.5% SM Energy Company ( SM Quick Quote SM - Free Report) Based in Denver, CO, SM Energy is an independent energy company engaged in the exploration, exploitation, development, acquisition, and production of natural gas and crude oil (see: all the Energy ETFs here). Zacks Rank: #3 VGM Style Score: B Market Cap: $2.43 billion One-Month Return: 18.7% Whiting Petroleum Corporation WLL Based in Denver, Co, Whiting Petroleum is an independent oil and gas company that acquires, exploits, develops and explores for crude oil, natural gas and natural gas liquids primarily in the Permian Basin, Rocky Mountains, Mid-Continent, Gulf Coast and Michigan regions of the United States. Zacks Rank: #3 VGM Style Score: B Market Cap: $2.36 billion One-Month Return: 17.9% 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 >>